Debt Ratios for Home Financing

Your debt to income ratio is a tool lenders use to calculate how much money can be used for a monthly mortgage payment after all your other monthly debts have been met.

How to figure your qualifying ratio

Most conventional loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

For these ratios, the first number is the percentage 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.

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

Examples:

With a 28/36 qualifying 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'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualification Calculator.

Just Guidelines

Remember these are only guidelines. We'd be thrilled to help you pre-qualify to help you determine how much you can afford.

Bank of Cordell can answer questions about these ratios and many others. Give us a call: 580.832.5600.