Debt Ratios for Home Lending

Your debt to income ratio is a formula lenders use to determine how much of your income is available for a monthly home loan payment after all your other recurring debts have been met.

Understanding your qualifying ratio

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

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes auto/boat payments, child support and credit card payments.

Examples:

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 calculate pre-qualification numbers with your own financial data, feel free to use our superb Loan Qualifying Calculator.

Guidelines Only

Remember these are only guidelines. We will be thrilled to help you pre-qualify to determine how much you can afford.

Forum Mortgage Bancorp can answer questions about these ratios and many others. Call us at (773) 774-9040 Ext 121.

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