Debt Ratios for Home Lending

Your debt to income ratio is a formula lenders use to calculate how much of your income is available for a monthly home loan payment after all your other monthly debt obligations have been fulfilled.

Understanding the 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) ratio.

For 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 homeowners' insurance, homeowners' dues, PMI - everything.

The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes auto/boat payments, child support and credit card payments.

Some example data:

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, we offer a Loan Qualifying Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We'd be thrilled to pre-qualify you to determine how large a mortgage you can afford.

Atlantic Financial Services can walk you through the pitfalls of getting a mortgage. Call us at (732) 969-9300.

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