Debt Ratios for Home Lending

The debt to income ratio is a tool lenders use to determine how much money can be used for a monthly mortgage payment after you have met your various other monthly debt payments.

About the qualifying ratio

Usually, underwriting for conventional mortgages requires 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 be applied to housing costs (including mortgage principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt together. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.

Some example data:

With a 28/36 ratio

  • 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, feel free to use our Loan Qualification Calculator.

Just Guidelines

Don't forget these are only guidelines. We'd be happy to help you pre-qualify to help you determine how large a mortgage you can afford.

VSI Home Lending can answer questions about these ratios and many others. Give us a call: (260) 338-2561.

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