Ratio of Debt to Income

The debt to income ratio is a tool lenders use to calculate how much of your income can be used for a monthly home loan payment after all your other recurring debts have been met.

About the qualifying ratio

In general, conventional loans 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 amount (as a percentage) of gross monthly income that can be applied to housing costs (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

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

For example:

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 with your own financial data, feel free to use our Loan Qualification Calculator.

Just Guidelines

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 walk you through the pitfalls of getting a mortgage. Give us a call at (334) 285-8850.

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