Debt Ratios for Home Lending

Your debt to income ratio is a formula lenders use to determine how much money is available for a monthly mortgage payment after all your other monthly debts are fulfilled.

Understanding your qualifying ratio

Most underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing costs (this includes principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).

The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, and the like.

For example:

With a 28/36 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 want to run your own numbers, feel free to use our very useful Mortgage Loan Qualification Calculator.

Guidelines Only

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

Contemporary Mortgage Services, Inc can walk you through the pitfalls of getting a mortgage. Call us at 407-834-3377.

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