Debt-to-Income Ratio

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

How to figure your qualifying ratio

Most 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) ratio.

For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that makes up the full payment.

The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, car payments, child support, and the like.

Some example data:

28/36 (Conventional)

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, use this Loan Qualifying Calculator.

Guidelines Only

Remember these are only guidelines. We will be thrilled to help you pre-qualify to determine 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: (334) 285-8850.

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