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.

Understanding your qualifying ratio

For the most part, underwriting for conventional 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) qualifying ratio.

The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.

The second number in the ratio 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, car loans, child support, and the like.

Some example data:

With a 28/36 qualifying ratio

• Gross monthly income of $3,500 x .28 = $980 can be applied to housing
• Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
• Gross monthly income of $3,500 x .41 = $1,435 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 Loan Qualification Calculator.

Guidelines Only

Don't forget these are just guidelines. We will be happy to go over pre-qualification to determine how large a mortgage loan you can afford.

At American Mortgage Services, we answer questions about qualifying all the time. Call us: 9018401400.