Debt-to-Income Ratio

The ratio of debt to income is a tool lenders use to calculate how much money is available for a monthly home loan payment after all your other recurring debts are fulfilled.

Understanding the qualifying ratio

In general, 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) qualifying ratio.

For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything.

The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt. Recurring debt includes payments on credit cards, car loans, child support, and the like.

Some example data:

With a 28/36 qualifying ratio

  • 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 want to run your own numbers, feel free to use our very useful Loan Qualification Calculator.

Guidelines Only

Don't forget these are only guidelines. We will be happy to pre-qualify you 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. Call us: (334) 285-8850.

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