Debt Ratios for Home Lending

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Your ratio of debt to income is a formula lenders use to determine how much money is available for your monthly mortgage payment after you meet your various other monthly debt payments.

About your qualifying ratio

For the most part, conventional mortgages require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing (this includes mortgage principal and interest, PMI, homeowner's insurance, property taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt together. Recurring debt includes things like auto/boat loans, child support and credit card payments.

Examples:

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 calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Loan Qualifying Calculator.

Don't forget these are only guidelines. We'd be happy to pre-qualify you to determine how much you can afford. Hanson Planning Group can walk you through the pitfalls of getting a mortgage. Call us: (303) 300-8601.

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