Debt Ratios for Home Financing

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other recurring loans.

Understanding your qualifying ratio

In general, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.

The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt. Recurring debt includes auto payments, child support and credit card payments.

For example:

28/36 (Conventional)

• 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 on your own income and expenses, feel free to use our superb Mortgage Pre-Qualifying Calculator.

Just Guidelines

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

ADVISORY MORTGAGE can walk you through the pitfalls of getting a mortgage. Give us a call at 8102292820.