FHA Debt Ratios

In order to prevent homebuyers from getting into a home they cannot afford, FHA guidelines have been set in place requiring borrowers and/or their spouse to qualify according to set debt to income ratios. These ratios are used to calculate whether or not the potential borrower is in a financial position that would allow them to meet the demands that are often included in owning a home. The two ratios are as follows:

1) MORTGAGE PAYMENT EXPENSE TO EFFECTIVE INCOME

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 29%. See the following example:

	Total amount of new house payment:	$750
	Borrower's gross monthly income (including spouse, if married):	$2,850
	Divide total house payment by gross monthly income:	$750/$2,850
	Debt to income ratio:	26.32%

2) TOTAL FIXED PAYMENT TO EFFECTIVE INCOME

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 41%. See the following example:

	Total amount of new house payment:	$750
	Total amount of monthly recurring debt:	$400
	Total amount of monthly debt:	$1,150
	Borrower's gross monthly income (including spouse, if married):	$2,850
	Divide total monthly debt by gross monthly income:	$1,150/$2,850
	Debt to income ratio:	40.35%

Please note that the above indicators do not exclusively determine whether or not a candidate will qualify for an FHA loan. Other factors will be considered, including credit history and job stability.

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