Debt Ratios for Home Financing

Your 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 debt obligations have been fulfilled.

Understanding the qualifying ratio

Typically, 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 amount (as a percentage) of gross monthly income that can be spent on housing costs (this includes principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, auto loans, child support, etcetera.

For example:

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 calculate pre-qualification numbers on your own income and expenses, use this Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.

At PREMIERE MORTGAGE SERVICES, INC., we answer questions about qualifying all the time. Give us a call at 978-422-2311.

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