Debt Ratios for Home Lending

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

How to figure your qualifying ratio

In general, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 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 (including loan principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, car payments, child support, and the like.

Some example data:

With a 28/36 qualifying 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 Qualifying Calculator.

Guidelines Only

Remember these are only guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.

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

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