Debt Ratios for Home Financing

The ratio of debt to income is a tool lenders use to calculate how much money can be used for your monthly mortgage payment after all your other monthly debts have been fulfilled.

About your qualifying ratio

Usually, underwriting for conventional mortgage 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.

In these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that constitutes the full payment.

The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt together. Recurring debt includes auto payments, child support and credit card payments.

Some example data:

28/36 (Conventional)

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, we offer a Mortgage Pre-Qualification Calculator.

Guidelines Only

Remember these ratios are just guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.

VSI Home Lending can walk you through the pitfalls of getting a mortgage. Give us a call: (260) 338-2561.

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