Debt Ratios for Home Financing
The ratio of debt to income is a tool lenders use to calculate how much money is available for a monthly home loan payment after all your other recurring debt obligations have been met.
How to figure the qualifying ratio
Usually, underwriting for conventional mortgage 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) ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes credit card payments, auto loans, child support, and the like.
Some example data:
With a 28/36 qualifying ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, use this Loan Qualifying Calculator.
Remember these ratios are only guidelines. We'd be happy to help you pre-qualify to help you determine how much you can afford.
At Pacific Mortgage Consultants, we answer questions about qualifying all the time. Call us at 530-677-2703. Want to get started? Apply Now