Debt Ratios for Home Lending

Your ratio of debt to income is a formula lenders use to determine how much money is available for your monthly home loan payment after you meet your other monthly debt payments.

Understanding the qualifying ratio

Most underwriting for conventional mortgage loans needs 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 gross monthly income that can go to housing (this includes loan principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt together. Recurring debt includes payments on credit cards, auto/boat payments, child support, and the like.

For example:

28/36 (Conventional)

• Gross monthly income of $2,700 x .28 = $756 can be applied to housing
• Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $2,700 x .29 = $783 can be applied to housing
• Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Pre-Qualifying Calculator.