Debt Ratios for Home Lending

The ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly mortgage payment after all your other monthly debts are fulfilled.

About the qualifying ratio

In general, underwriting for conventional mortgage loans needs 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.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. Recurring debt includes car payments, child support and credit card payments.

Examples:

28/36 (Conventional)

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, use this Loan Qualification Calculator.

Guidelines Only

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

At Prime Capital Mortgage Corp, we answer questions about qualifying all the time. Give us a call at 248-644-1200.

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