Debt Ratios for Home Financing

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other monthly loans.

How to figure your qualifying ratio

Usually, underwriting for conventional mortgages needs 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.

In these ratios, the first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.

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

For example:

With a 28/36 ratio

  • 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 want to calculate pre-qualification numbers with your own financial data, feel free to use our Loan Qualification Calculator.

Just Guidelines

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

The Reen Team at American Pacific Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: (408) 626-1879.

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