Debt Ratios for Home Lending
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other recurring debts.
How to figure your qualifying ratio
Typically, underwriting for conventional 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 amount (as a percentage) of your gross monthly income that can go to housing costs (this includes mortgage principal and interest, PMI, hazard insurance, property taxes, and HOA dues).
The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes things like vehicle loans, child support and monthly credit card payments.
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, feel free to use our very useful Loan Qualification Calculator.
Remember these ratios are just guidelines. We will be happy to pre-qualify you to help you figure out how large a mortgage you can afford.