Debt Ratios for Home Financing

The ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly home loan payment after all your other monthly debt obligations are met.

Understanding the qualifying ratio

Typically, conventional loans require 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 your gross monthly income that can be applied to housing costs (this includes mortgage principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt together. Recurring debt includes vehicle payments, child support and monthly credit card payments.

Examples:

With a 28/36 qualifying ratio

  • 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 run your own numbers, use this Mortgage Pre-Qualifying Calculator.

Guidelines Only

Remember these are only guidelines. We'd be thrilled to help you pre-qualify to help you determine how large a mortgage 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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