Debt Ratios for Home Lending

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

Understanding the qualifying ratio

Usually, underwriting for conventional mortgage loans requires 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 in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing (including mortgage principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes things like car loans, child support and credit card payments.

Some example data:

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, please use this Mortgage Qualification Calculator.

Just Guidelines

Don't forget these are just guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.

Chris Caggiano - Grand Oaks Funding, LLC can answer questions about these ratios and many others. Call us at (718) 477-4405.

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