FHA Loan Qualifying Factors
August 6, 2012
When you submit your application for an FHA-guaranteed mortgage, the lender is required to review your verifiable income, your debts and financial obligations, and determine your debt-to-income ratio.
The ratio is a very important part of the FHA loan approval equation, but it is not the only factor. Your loan officer must establish whether the borrower can, if the FHA loan is approved, afford to pay both the mortgage payment as well as the financial obligations listed and verified on the FHA loan application.
Chapter Four of the FHA loan rules found in HUD 4155.1 sums it up:
"The relationship of the mortgage payment to income is considered acceptable if the total mortgage payment does not exceed 31% of the gross effective income."
This would seem to imply that an FHA loan applicant will NOT be qualified for the loan if the amount is higher than 31% of the gross effective income. But is that ALWAYS true?
The FHA does make allowances in certain situations--the rules state that a ratio higher than 31% "may be acceptable only if significant compensating factors, as discussed in HUD 4155.1 4.F.3, are documented and recorded on Form HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary." Ask your loan officer under what circumstances you might exceed the 31% ratio and still be approved for an FHA home loan.
Have you been trying to crunch the numbers on your own to see whether you can afford the FHA loan? If so, don't overlook the TOTAL amount of your FHA loan obligation each month, which is not limited to the mortgage payment amount plus interest. The FHA definition of the total mortgage payment includes
--principal and interest
--escrow deposits for real estate taxes
--hazard insurance
--mortgage insurance premium
--homeowners' association dues
--ground rent
--special assessments, and
--payments for any acceptable secondary financing
Reading over that list, it's easy to see there are more items to budget for when planning your finances for a new home loan than just the basic loan payments.
If you are reading these facts and figures for the first time, contact the FHA (1-800 CALL FHA) to get a referral for FHA-approved pre-purchase counseling. You may be surprised at how helpful such counseling can be when it comes to being fully prepared for your first home loan.
The ratio is a very important part of the FHA loan approval equation, but it is not the only factor. Your loan officer must establish whether the borrower can, if the FHA loan is approved, afford to pay both the mortgage payment as well as the financial obligations listed and verified on the FHA loan application.
Chapter Four of the FHA loan rules found in HUD 4155.1 sums it up:
"The relationship of the mortgage payment to income is considered acceptable if the total mortgage payment does not exceed 31% of the gross effective income."
This would seem to imply that an FHA loan applicant will NOT be qualified for the loan if the amount is higher than 31% of the gross effective income. But is that ALWAYS true?
The FHA does make allowances in certain situations--the rules state that a ratio higher than 31% "may be acceptable only if significant compensating factors, as discussed in HUD 4155.1 4.F.3, are documented and recorded on Form HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary." Ask your loan officer under what circumstances you might exceed the 31% ratio and still be approved for an FHA home loan.
Have you been trying to crunch the numbers on your own to see whether you can afford the FHA loan? If so, don't overlook the TOTAL amount of your FHA loan obligation each month, which is not limited to the mortgage payment amount plus interest. The FHA definition of the total mortgage payment includes
--principal and interest
--escrow deposits for real estate taxes
--hazard insurance
--mortgage insurance premium
--homeowners' association dues
--ground rent
--special assessments, and
--payments for any acceptable secondary financing
Reading over that list, it's easy to see there are more items to budget for when planning your finances for a new home loan than just the basic loan payments.
If you are reading these facts and figures for the first time, contact the FHA (1-800 CALL FHA) to get a referral for FHA-approved pre-purchase counseling. You may be surprised at how helpful such counseling can be when it comes to being fully prepared for your first home loan.
Do you know what's on your credit report?
Learn what your score means.
