Debt Ratios for Home Financing

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

About 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 in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing costs (this includes principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month that can be spent on housing costs and recurring debt together. Recurring debt includes payments on credit cards, car payments, child support, and the like.

Examples:

With a 28/36 ratio

  • 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, feel free to use our superb Loan Qualification Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.

At Norcal Capital Group, Inc, we answer questions about qualifying all the time. Call us: 6507631924.

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Norcal Capital Group, Inc

1369 El Camino Real
Millbrae, CA 94030