Ratio of Debt to Income

Your ratio of debt to income is a tool lenders use to determine how much of your income can be used for a monthly mortgage payment after you have met your various other monthly debt payments.

Understanding your qualifying ratio

Usually, underwriting for conventional loans 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.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing (this includes principal and interest, PMI, homeowner's insurance, property tax, 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 expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, and the like.

Some example data:

With 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 calculate pre-qualification numbers on your own income and expenses, please use this Mortgage Pre-Qualification Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.

First Community Bank of Central Al. can walk you through the pitfalls of getting a mortgage. Give us a call at (334) 285-8850.

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