Ratio of Debt-to-Income

The ratio of debt to income is a tool lenders use to determine how much of your income is available for your monthly mortgage payment after you have met your various other monthly debt payments.

How to figure the qualifying ratio

Most 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 (including mortgage principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).

The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt together. Recurring debt includes vehicle payments, child support and monthly credit card payments.

For example:

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 want to run your own numbers, please use this Mortgage Loan Qualification Calculator.

Guidelines Only

Remember these ratios are only guidelines. We'd be happy to pre-qualify you to determine how much you can afford.

First State Bank can walk you through the pitfalls of getting a mortgage. Give us a call at 4025970500.

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