Debt Ratios for Home Lending

The debt to income ratio is a tool lenders use to determine how much of your income can be used for your monthly home loan payment after you have met your various other monthly debt payments.

About the qualifying ratio

Most 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 is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the full payment.

The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt. Recurring debt includes vehicle loans, child support and 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 calculate pre-qualification numbers with your own financial data, we offer a Mortgage Pre-Qualifying Calculator.

Just Guidelines

Remember these ratios are only guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.

Nationwide Home Loans can answer questions about these ratios and many others. Give us a call: (562) 693-5048.

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