Debt Ratios for Home Financing

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other recurring debts.

How to figure the qualifying ratio

Most 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 percentage of your gross monthly income that can be spent on housing (this includes principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA 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 things like car loans, child support and monthly credit card payments.

For example:

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 want to run your own numbers, feel free to use our superb Mortgage Qualification Calculator.

Guidelines Only

Don't forget these are just guidelines. We'd be happy to pre-qualify you to determine how large a mortgage you can afford.

Southwest Funding #841
Company NMLS # 303440 can walk you through the pitfalls of getting a mortgage. 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