FHA loans
FHA requirements for debt ratios can protect you from getting into an FHA mortgage you can't afford to pay. FHA guidelines require borrowers to qualify according to set debt-to-income ratios.
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FHA Requirements: Debt Ratios

Comparing Your Debt to Your Income

In order to prevent homebuyers from getting into a home they cannot afford, FHA requirements and 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 31%. 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 43%. 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.

FHA NEWS and RELATED ARTICLES
When applying for an FHA home loan, some lenders may ask for tax paperwork as part of the application process. Some borrowers may wonder if this is legal, or an acceptable practice for home loans in general.

FHA loan applicants should compare rates and terms with competing lenders to try to get the most favorable terms on the loan or refinance loan. Down payment rules for FHA loans require a minimum 3.5% down compared to up to 20% for conventional loans.

There are many typical questions about FHA loan closing costs. For example, some wonder if the closing costs can be viewed as part of the required FHA loan down payment. (That is not possible, the closing costs and down payment are two separate things.)

Some borrowers come to the FHA loan process with a long credit history, while other borrowers are just getting started. Is it possible for a borrower be turned down for an FHA loan because of a lack of credit history?

When the Department of Housing and Urban Development announced the FHA’s Back to Work program, it was very good news for any potential FHA loan applicant who may have experienced previous financial hardship as a result of the recession.

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