Debt Ratios for Residential Lending

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

Understanding your qualifying ratio

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

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat payments, child support, and the like.

Some example data:

A 28/36 ratio

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, we offer a Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how much you can afford.

First Community Bank of Central Al. can answer questions about these ratios and many others. Give us a call at (334) 285-8850.

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