Debt Ratios for Home Financing

Your debt to income ratio is a tool lenders use to determine how much of your income is available for a monthly mortgage payment after you have met your other monthly debt payments.

How to figure the qualifying ratio

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

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing costs (including mortgage principal and interest, PMI, hazard insurance, taxes, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes auto loans, child support and monthly 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'd like to calculate pre-qualification numbers with your own financial data, feel free to use our Mortgage Pre-Qualification Calculator.

Just Guidelines

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

Financial Edge Mortgage Corp. can answer questions about these ratios and many others. Give us a call: 425-508-9988.

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