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Debt Ratios for Home Lending

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

About 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) qualifying ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing costs (including loan principal and interest, PMI, hazard insurance, taxes, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, vehicle loans, child support, and the like.

Some example data:

A 28/36 qualifying ratio

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, we offer a Loan Qualification Calculator.

Guidelines Only

Remember these ratios are only guidelines. We'd be thrilled to pre-qualify you to determine how large a mortgage you can afford.

Greystone Loans, Inc. can answer questions about these ratios and many others. Call us: (909) 467-1090.

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