Debt Ratios for Home Financing

The ratio of debt to income is a formula lenders use to calculate how much money can be used for your monthly home loan payment after you have met your other monthly debt payments.

How to figure your qualifying ratio

For the most part, conventional loans need a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing (this includes mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).

The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt. Recurring debt includes credit card payments, auto/boat payments, child support, etcetera.

Examples:

28/36 (Conventional)

  • 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'd like to run your own numbers, feel free to use our Loan Qualifying Calculator.

Guidelines Only

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

First Southeast Mortgage Corporation can answer questions about these ratios and many others. Give us a call at 954.920.9799.

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