Debt Ratios for Home Financing

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

How to figure the qualifying ratio

Usually, conventional loans need 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 be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.

The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. Recurring debt includes vehicle loans, child support and monthly credit card payments.

For example:

28/36 (Conventional)

  • 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 want to run your own numbers, use this Loan Pre-Qualifying Calculator.

Just Guidelines

Remember these are just guidelines. We'd be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.

Norcal Capital Group, Inc can walk you through the pitfalls of getting a mortgage. Give us a call at (650) 689-5684.

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