Debt Ratios for Home Lending

The debt to income ratio is a formula lenders use to calculate how much money can be used for your monthly home loan payment after you have met your other monthly debt payments.

Understanding the qualifying ratio

In general, conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.

The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle loans, child support, etcetera.

For example:

28/36 (Conventional)

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers with your own financial data, feel free to use our superb Loan Pre-Qualifying Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage loan you can afford.

MidTowne Mortgage can walk you through the pitfalls of getting a mortgage. Call us: (478) 746-2063.

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