Debt Ratios for Home Financing

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts are paid.

Understanding your qualifying ratio

For the most part, underwriting for conventional loans needs 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.

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

The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, vehicle loans, child support, and the like.

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 calculate pre-qualification numbers with your own financial data, please use this Loan Qualifying Calculator.

Just Guidelines

Remember these are just guidelines. We'd be happy to go over pre-qualification to determine how much you can afford.

At Executive Lending Group, we answer questions about qualifying all the time. Call us at 4056158543.