Debt Ratios for Home Financing

Your ratio of debt to income is a tool lenders use to determine how much money is available for a monthly home loan payment after you meet your other monthly debt payments.


Understanding your qualifying ratio

Typically, underwriting for conventional mortgage loans requires 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 in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing (including principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).

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

Examples:

A 28/36 ratio

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses


If you'd like to calculate pre-qualification numbers with your own financial data, use this Loan Pre-Qualification Calculator.

Don't forget these ratios are just guidelines. We will be happy to pre-qualify you to help you determine how much you can afford. Alternative Mortgage Group can walk you through the pitfalls of getting a mortgage. Give us a call: 561-395-4264. Ready to begin? Apply Now.