Debt to Income Ratio
Your debt to income ratio is a tool lenders use to calculate how much money can be used for your monthly home loan payment after all your other recurring debts are fulfilled.
Understanding your qualifying ratio
Most conventional loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the full payment.
The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. Recurring debt includes credit card payments, auto/boat payments, child support, and the like.
Some example data:
With a 28/36 qualifying ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our Loan Qualification Calculator.
Remember these ratios are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how much you can afford.
First Community Bank of Central Al. can walk you through the pitfalls of getting a mortgage. Give us a call: (334) 285-8850.