Debt Ratios for Home Lending

Your debt to income ratio is a formula lenders use to calculate how much of your income can be used for a monthly home loan payment after all your other monthly debt obligations have been fulfilled.

About the qualifying ratio

Most conventional mortgage loans need 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 amount (as a percentage) of your gross monthly income that can be applied to housing (including mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).

The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto loans, child support, and the like.

Examples:

28/36 (Conventional)

  • 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 calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Mortgage Qualification Calculator.

Guidelines Only

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

Northeast Bancorp of America, Inc. can walk you through the pitfalls of getting a mortgage. Call us at (440) 234-9660.

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