Debt Ratios for Home Financing

Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you've paid your other recurring debts.

How to figure the qualifying ratio

In general, conventional mortgages require 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 spent on housing (this includes principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, etcetera.

Examples:

28/36 (Conventional)

  • 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, we offer a Loan Pre-Qualifying Calculator.

Guidelines Only

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

The Mortgage Exchange Service LLC can answer questions about these ratios and many others. Give us a call at 7032555810.

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