Debt Ratios for Home Lending

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

Understanding your qualifying ratio

In general, conventional mortgages require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

In these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that makes up the full payment.

The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes credit card payments, auto loans, child support, etcetera.

Some example data:

28/36 (Conventional)

• Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
• Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
• Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, feel free to use our Loan Qualification Calculator.

Just Guidelines

Don't forget these ratios are just guidelines. We'd be happy to help you pre-qualify to help you determine how much you can afford.

At Pauline Shah, we answer questions about qualifying all the time. Call us: 925-895-4155.