Debt to Income Ratio
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts have been paid.
About your qualifying ratio
Usually, conventional loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that constitutes 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 payments on credit cards, auto payments, child support, etcetera.
Some example data:
With a 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 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.
Remember these are just guidelines. We'd be thrilled to pre-qualify you to help you figure out how much 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.