Debt Ratios for Home Financing

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The debt to income ratio is a formula lenders use to calculate how much of your income is available for a monthly mortgage payment after you have met your other monthly debt payments.

How to figure your qualifying ratio

In general, conventional loans require 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 go to housing costs (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto/boat payments, child support, et cetera.

For example:

With a 28/36 qualifying ratio

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

 

If you want to run your own numbers, we offer a Mortgage Loan Qualification Calculator. This calculator is for your own personal 

We'd be thrilled to go over the process to help you figure out how large a mortgage you can afford. Cody Reid and his staff at Nations Reliable Lending, LLC can answer questions about these ratios and many others.

Give Cody Reid and his team a call today! 



**Not all applicants will qualify.  Please meet with a licensed loan originator for more information.  Rates, fees, terms, and programs are subject to change without notice.  Not all loans, loan sizes, or products may apply.  Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet loan-to-value requirements, and final credit approval.  Approvals are subject to underwriting guidelines and program guidelines and are subject to change without notice. Nations Reliable Lending, LLC has no affiliation, association, and is in no way officially connected with the mortgage calculator link provided, as this is just for consumer personal use only and is not intended to replace professional financial advice.**

 

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