Debt Ratios for Home Financing

Your debt to income ratio is a formula lenders use to determine how much of your income is available for a monthly home loan payment after you have met your various other monthly debt payments.

Understanding the qualifying ratio

Typically, underwriting for conventional mortgage loans needs 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 hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the full payment.

The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.

Examples:

A 28/36 qualifying ratio

  • 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 want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualification Calculator.

Just Guidelines

Don't forget these are just guidelines. We'd be thrilled to pre-qualify you to help you determine how much you can afford.

Alternative Mortgage Group can answer questions about these ratios and many others. Give us a call: 561-395-4264.