Debt Ratios for Home Financing

The debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly home loan payment after you meet your various other monthly debt payments.

Understanding your qualifying ratio

Typically, conventional loans need 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 the percentage 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 that constitutes the full payment.

The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and credit card payments.

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 run your own numbers, we offer a Mortgage Loan Qualification Calculator.

Guidelines Only

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

Capacity Lending, LLC can walk you through the pitfalls of getting a mortgage. Call us at 469-640-0400.

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