Debt Ratios for Home Lending

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

How to figure your qualifying ratio

Usually, underwriting for conventional loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing (including loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

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

Some example data:

28/36 (Conventional)

  • 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'd like to run your own numbers, we offer a Mortgage Loan Pre-Qualification Calculator.

Just Guidelines

Remember these are just guidelines. We will be thrilled to go over pre-qualification to help you determine 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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