Debt Ratios for Home Financing

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

Understanding your qualifying ratio

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

In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.

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. Recurring debt includes things like auto payments, child support and credit card payments.

Some example data:

28/36 (Conventional)

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers on your own income and expenses, use this Loan Qualification Calculator.

Guidelines Only

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

Coastal Mortgage Corp. can answer questions about these ratios and many others. Give us a call: 504-866-5626.

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