Ratio of Debt-to-Income

Your ratio of debt to income is a formula lenders use to determine how much money is available for a monthly home loan payment after all your other recurring debt obligations are fulfilled.

About the qualifying ratio

For the most part, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

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, homeowners' dues, Private Mortgage Insurance - everything that constitutes the full payment.

The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes vehicle payments, child support and monthly credit card payments.

Examples:

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'd like to calculate pre-qualification numbers on your own income and expenses, please use this Mortgage Loan Qualifying Calculator.

Guidelines Only

Remember these are just guidelines. We will be thrilled to help you pre-qualify to help you figure out how much you can afford.

Homewood Mortgage, Inc. can walk you through the pitfalls of getting a mortgage. Call us: 205-941-1484.

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