Debt Ratios for Home Financing

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

Understanding your qualifying ratio

Most underwriting for conventional mortgage loans requires 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 go to housing costs (this includes mortgage principal and interest, PMI, hazard insurance, property tax, and HOA dues).

The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes auto payments, child support and monthly credit card payments.

For example:

28/36 (Conventional)

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

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

Just Guidelines

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

PREMIERE MORTGAGE SERVICES INC. can walk you through the pitfalls of getting a mortgage. Call us: 978-422-2311.

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