Debt Ratios for Home Lending

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other recurring debts.

Understanding the qualifying ratio

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

For these ratios, 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 homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the full payment.

The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt together. Recurring debt includes auto loans, child support and monthly credit card payments.

For example:

A 28/36 qualifying 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 Qualification Calculator.

Just Guidelines

Remember these ratios are only guidelines. We will be thrilled to pre-qualify you 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: (650) 689-5684.

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