Debt Ratios for Home Lending

The ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly home loan payment after you have met your other monthly debt payments.

How to figure your qualifying ratio

For the most part, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.

The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt. Recurring debt includes auto loans, child support and monthly credit card payments.

For example:

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 want to run your own numbers, use this Loan Pre-Qualifying Calculator.

Guidelines Only

Don't forget these are only guidelines. We'd be happy to pre-qualify you to determine how large a mortgage loan 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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