Debt Ratios for Home Financing

The ratio of debt to income is a formula lenders use to determine how much money can be used for a monthly mortgage payment after you have met your various other monthly debt payments.

About your qualifying ratio

Typically, underwriting for conventional 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 is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.

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

Some example data:

A 28/36 ratio

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, we offer a Mortgage Loan Pre-Qualifying Calculator.

Just Guidelines

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

Cal Coast Financial Corp can walk you through the pitfalls of getting a mortgage. Give us a call at (510) 683-9850.

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