Debt Ratios for Home Financing

The ratio of debt to income is a tool lenders use to determine how much money can be used for a monthly mortgage payment after all your other recurring debts are fulfilled.

How to figure the qualifying ratio

Usually, underwriting for conventional mortgages 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 amount (as a percentage) of gross monthly income that can be applied to housing (including principal and interest, PMI, homeowner's insurance, property taxes, and homeowners' association dues).

The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt together. Recurring debt includes vehicle loans, child support and credit card payments.

Examples:

A 28/36 ratio

  • 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, please use this Mortgage Loan Qualification Calculator.

Guidelines Only

Remember these ratios are just guidelines. We'd be thrilled to pre-qualify you to help you determine how much you can afford.

At Southwest Funding #841
Company NMLS # 303440, we answer questions about qualifying all the time. Give us a call at 5122916100.

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Southwest Funding #841
Company NMLS # 303440

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7901 Cameron Road Bldg 2 Ste 246
Austin, TX 78754