Debt Ratios for Home Lending
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly debts.
How to figure the qualifying ratio
Most conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (this includes principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes credit card payments, vehicle loans, child support, etcetera.
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'd like to run your own numbers, feel free to use our Mortgage Pre-Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford.
Wize Mortgage LLC can walk you through the pitfalls of getting a mortgage. Call us: .