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Some home loan applicants apply for an FHA mortgage thinking that their credit scores are the main factor in home loan approval. Others might know that both FICO scores and your record of on-time payments are crucial for loan approval.

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

FHA Loan Approval and Your Debt Ratio

April 1, 2021

FHA Loan Approval and Your Debt Ratio
Some home loan applicants apply for an FHA mortgage thinking that their credit scores are the main factor in home loan approval. Others might know that both FICO scores and your record of on-time payments are crucial for loan approval.

But there’s also a third factor to be concerned with when applying for any big line of credit; your debt-to-income ratio. No matter if you are seeking a construction loan to build on your own lot, you need a mobile home loan, or if you want to buy a condo in an existing condo project, these things are important to know.

FHA Loan Debt-to-Income Ratios

Your lender needs to make sure you can realistically afford the cost of your mortgage in addition to the rest of your monthly financial obligations. Your lender actually has to make two calculations to make sure you can afford your mortgage.

One is adding your total mortgage payment, which will include the principal and interest plus mortgage insurance and other costs, and then dividing that amount by the applicant’s monthly income (gross income, not net income).

The highest your debt-to-income ratio can be to qualify with this specific calculation is 31%.
The OTHER FHA loan debt ratio calculation is made when your lender adds the total proposed mortgage payment (again, adding the principal, interest and other fees of the monthly loan together) plus all your monthly debt, dividing the sum by the gross monthly income. For this calculation, the maximum ratio to qualify is 43%.

Online Mortgage Calculators For Borrowers

You can get a headstart on your debt ratio by calculating it yourself in the earliest stages of your home loan planning process. If your debt ratio is high, calculating it early can help you to work on your debt ratio long before you submit application paperwork for your mortgage or fill out online forms.

You definitely WANT to work on lowering the amount of your monthly debt ahead of your loan amount. Don’t make the newcomer mistake of paying off old credit card accounts and then closing them down--the older your credit accounts are the better. But you SHOULD reduce your monthly financial obligations--pay down or pay off the credit cards, but do not close the accounts.

It’s equally important when you are paying down your debt ratios not to skip payments on other debt in the meantime. Your on-time record of payments the 12 months or more ahead of your loan application are crucial. Keep making payments while forming a strategy to pay down your monthly debt obligations.

Remember, you can always get help in these areas from the FHA by calling their toll-free number (1-800 CALL FHA) and asking for a referral to a local, HUD-approved housing counselor.

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