Debt Ratios for Home Financing

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

How to figure the qualifying ratio

In general, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing costs (this includes mortgage principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. Recurring debt includes car loans, child support and monthly credit card payments.

For example:

28/36 (Conventional)

• Gross monthly income of $2,700 x .28 = $756 can be applied to housing
• Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $2,700 x .29 = $783 can be applied to housing
• Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, use this Mortgage Pre-Qualification Calculator.

Guidelines Only

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

At Contemporary Mortgage Services, Inc, we answer questions about qualifying all the time. Call us: 407-834-3377.