Debt Ratios for Home Lending

The ratio of debt to income is a formula lenders use to calculate how much money can be used for your monthly home loan payment after you meet your other monthly debt payments.

About your qualifying ratio

For the most part, underwriting for conventional mortgage loans requires 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, PMI - everything.

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

For example:

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-Qualification Calculator.

Just Guidelines

Don't forget these are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how much you can afford.

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