Debt Ratios for Home Financing

The debt to income ratio is a formula lenders use to determine how much of your income is available for a monthly mortgage payment after you have met your various other monthly debt payments.

About your qualifying ratio

Typically, conventional loans need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing costs (including mortgage principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes credit card payments, car payments, child support, and the like.

For example:

A 28/36 qualifying 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 want to run your own numbers, we offer a Mortgage Loan Qualifying Calculator.

Guidelines Only

Don't forget these are only guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.

Forum Mortgage Bancorp can walk you through the pitfalls of getting a mortgage. Give us a call: (773) 774-9040 Ext 121.

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