Debt Ratios for Home Financing

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

How to figure your qualifying ratio

Typically, conventional mortgages require 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.

For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. 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 should be applied to housing costs and recurring debt together. Recurring debt includes credit card payments, auto loans, child support, and the like.

Examples:

28/36 (Conventional)

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers with your own financial data, feel free to use our superb Loan Qualification Calculator.

Just Guidelines

Remember these ratios are only guidelines. We will be thrilled to go over pre-qualification to help you determine how much you can afford.

Alerus Mortgage can walk you through the pitfalls of getting a mortgage. Call us at 952 417 8481.

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