Debt Ratios for Home Lending
The ratio of debt to income is a formula lenders use to determine how much money can be used for your monthly home loan payment after all your other monthly debt obligations are met.
How to figure the qualifying ratio
For the most part, conventional loans require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 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 homeowners' insurance, HOA dues, Private Mortgage Insurance - 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. Recurring debt includes things like auto/boat loans, child support and credit card payments.
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, use this Mortgage Loan Qualification Calculator.
Don't forget these ratios are just guidelines. We will be happy to pre-qualify you to help you determine how large a mortgage you can afford.
At First Community Bank of Central Al., we answer questions about qualifying all the time. Give us a call at (334) 285-8850.