Debt Ratios for Home Lending
Your ratio of debt to income is a tool lenders use to determine how much money is available for a monthly home loan payment after all your other recurring debts have been met.
Understanding the qualifying ratio
Typically, conventional mortgages need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
For 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, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. Recurring debt includes auto/boat loans, child support and credit card payments.
Some example data:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our Mortgage Pre-Qualifying Calculator.
Guidelines Only
Remember these ratios are just guidelines. We will be happy to pre-qualify you to determine how large a mortgage you can afford.
The Reen Team at Direct Mortgage Funding can answer questions about these ratios and many others. Give us a call at 4086261879.