Debt Ratios for Home Lending

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other recurring debts have been paid.

About your qualifying ratio

For the most part, 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) qualifying ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing costs (including mortgage principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).

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 things like auto/boat loans, child support and monthly credit card payments.

For example:

With a 28/36 qualifying ratio

  • 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 on your own income and expenses, please use this Mortgage Qualifying Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We will be thrilled to pre-qualify you to determine how much you can afford.

1st Credential Mortgage Inc can answer questions about these ratios and many others. Give us a call at (281) 778-0805.

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