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 home loan payment after all your other recurring debts have been met.
About the qualifying ratio
In general, 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) qualifying ratio.
In these ratios, the first number is how much (by percent) 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 that constitutes the full payment.
The second number in the ratio is what percent of your gross income every month that should be spent on housing costs and recurring debt together. Recurring debt includes auto/boat loans, child support and credit card payments.
- 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 want to run your own numbers, feel free to use our Mortgage Qualifying Calculator.
Remember these are just guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.
American Commerce Mortgage can walk you through the pitfalls of getting a mortgage. Call us: 714-970-9700.