Debt Ratios for Home Lending
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly debts.
About the qualifying ratio
Typically, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month which can be applied to housing expenses and recurring debt together. Recurring debt includes car loans, child support and 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 calculate pre-qualification numbers with your own financial data, feel free to use our superb Mortgage Loan Pre-Qualifying Calculator.
Don't forget these ratios are just guidelines. We'd be thrilled to help you pre-qualify to help you determine how large a mortgage loan you can afford.