Debt/Income Ratio

The debt to income ratio is a tool lenders use to determine 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

Usually, conventional mortgages 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 is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.

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

Examples:

28/36 (Conventional)

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, feel free to use our Loan Pre-Qualifying Calculator.

Guidelines Only

Remember these ratios are just guidelines. We'd be thrilled to go over pre-qualification to determine how much you can afford.

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

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