Debt Ratios for Home Financing

Your ratio of debt to income is a formula lenders use to determine how much money can be used for a monthly mortgage payment after all your other monthly debt obligations are fulfilled.

Understanding the qualifying ratio

Most underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.

The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. Recurring debt includes vehicle loans, child support and credit card payments.

Examples:

A 28/36 ratio

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 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 Qualifying Calculator.

Just Guidelines

Don't forget these are only guidelines. We will be happy to go over pre-qualification to determine how large a mortgage loan 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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