Debt Ratios for Home Lending

Your debt to income ratio is a formula lenders use to determine how much money can be used for a monthly home loan payment after you meet your other monthly debt payments.

About your qualifying ratio

For the most part, underwriting for conventional mortgages needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.

For these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.

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

Examples:

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, use this Loan Qualification Calculator.

Guidelines Only

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

Colorado Mortgage Company can walk you through the pitfalls of getting a mortgage. Call us: 719-357-6601.

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