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 have been paid.

How to figure the qualifying ratio

For the most part, conventional loans require 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 percentage of gross monthly income that can be applied to housing (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. Recurring debt includes vehicle loans, child support and credit card payments.

For example:

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 want to run your own numbers, we offer a Mortgage Pre-Qualification Calculator.

Guidelines Only

Remember these ratios are only guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage you can afford.

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

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