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 your monthly mortgage payment after you have met your other monthly debt payments.

Understanding the qualifying ratio

Most underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing (including principal and interest, private mortgage insurance, hazard insurance, taxes, and HOA dues).

The second number is what percent of your gross income every month which can be spent on housing expenses 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 $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Qualification Calculator.

Just Guidelines

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

Northeast Bancorp of America, Inc. can answer questions about these ratios and many others. Give us a call: (440) 234-9660.

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