Debt Ratios for Home Financing

Your debt to income ratio is a formula lenders use to calculate how much of your income is available for your monthly mortgage payment after all your other monthly debts have been met.

Understanding your qualifying ratio

Typically, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing costs (including mortgage principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes credit card payments, car loans, child support, and the like.

For example:

With a 28/36 ratio

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, use this Mortgage Loan Pre-Qualification Calculator.

Guidelines Only

Remember these ratios are only guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage loan 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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