Your ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly mortgage payment after you have met your various other monthly debt payments.
About the qualifying ratio
In general, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing costs (this includes principal and interest, PMI, hazard insurance, property taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes credit card payments, vehicle payments, child support, and the like.
Some example data:
With a 28/36 qualifying ratio
- 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'd like to run your own numbers, feel free to use our superb Mortgage Qualification Calculator.
Remember these are only guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
At First Community Bank of Central Al., we answer questions about qualifying all the time. Give us a call: (334) 285-8850.