Debt Ratios for Home Financing

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other monthly debts are paid.

Understanding the qualifying ratio

Typically, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.

The second number in the ratio is what percent of your gross income every month that can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, etcetera.

Some example data:

With a 28/36 ratio

  • 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'd like to run your own numbers, we offer a Mortgage Qualifying Calculator.

Just Guidelines

Remember these ratios are only guidelines. We'd be happy to help you pre-qualify to help you determine how much you can afford.

At Cal Coast Financial Corp, we answer questions about qualifying all the time. Call us: (510) 683-9850.

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