Debt Ratios for Home Financing

Your ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly home loan payment after you have met your various other monthly debt payments.

Understanding your qualifying ratio

Typically, conventional loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

In these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything.

The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, etcetera.

For example:

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 want to run your own numbers, we offer a Mortgage Qualifying Calculator.

Guidelines Only

Remember these ratios are just guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.

Executive Lending Group can answer questions about these ratios and many others. Call us at (405) 615-8543.