Debt to Income Ratio

The ratio of debt to income is a tool lenders use to calculate how much money is available for your monthly home loan payment after all your other monthly debt obligations have been met.

Understanding your qualifying ratio

In general, conventional mortgage 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.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing costs (including principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, auto/boat payments, child support, etcetera.

For example:

28/36 (Conventional)

  • 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, feel free to use our superb Mortgage Qualifying Calculator.

Guidelines Only

Remember these are only guidelines. We will be happy to help you pre-qualify to determine how large a mortgage loan you can afford.

At First Community Bank of Central Al., we answer questions about qualifying all the time. Give us a call at (334) 285-8850.

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