Debt Ratios for Home Financing

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other recurring loans.

How to figure the qualifying ratio

Usually, conventional mortgages 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 is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.

The second number is what percent of your gross income every month which can be applied to housing expenses and recurring debt together. Recurring debt includes car loans, child support and monthly credit card payments.

For example:

With a 28/36 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, please use this Mortgage Qualification Calculator.

Just Guidelines

Don't forget these ratios are just guidelines. We will be happy to pre-qualify you to help you figure out how much you can afford.

The Reen Team at American Pacific Mortgage can answer questions about these ratios and many others. Give us a call: (408) 626-1879.

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