Debt Ratios for Home Lending

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other recurring loans.

How to figure the qualifying ratio

Typically, underwriting for conventional mortgages 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 amount (as a percentage) of your gross monthly income that can go to housing (including mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto loans, child support, and the like.

Examples:

A 28/36 ratio

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Loan Qualification Calculator.

Just Guidelines

Remember these are just guidelines. We will be thrilled to pre-qualify you to help you determine how large a mortgage loan you can afford.

At Firelight Mortgage Consultants, we answer questions about qualifying all the time. Give us a call: (303) 228-2254.

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