Debt Ratios for Home Lending

Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other recurring debts are paid.

How to figure the qualifying ratio

For the most part, conventional mortgages 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.

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

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. For purposes of this ratio, debt includes credit card payments, auto payments, child support, and the like.

Some example data:

A 28/36 qualifying ratio

  • 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, we offer a Mortgage Qualification Calculator.

Guidelines Only

Remember these are just guidelines. We'd be thrilled to help you pre-qualify to help you figure out how much you can afford.

Forum Mortgage Bancorp can answer questions about these ratios and many others. Give us a call: (773) 774-9040 Ext 121.

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