Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you have paid your other recurring loans.
About the qualifying ratio
Most underwriting for conventional mortgages requires 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 costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. Recurring debt includes credit card payments, auto payments, child support, and the like.
With a 28/36 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 superb Loan Pre-Qualifying Calculator.
Remember these are only guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.
First Community Bank of Central Al. can walk you through the pitfalls of getting a mortgage. Call us: (334) 285-8850.