WHAT ARE THE FHA DEBT TO INCOME RATIO GUIDELINES? Why is the debt-to-income ratio important for FHA mortgage qualifying? Answer: Your FHA debt-to-income ratio is the maximum ratio of all your monthly debts on your credit report and your housing expense divided by your gross monthly income. This number is one way FHA mortgage lenders measure your ability to manage all your monthly obligations
HOW DOES FHA CALCULATE THE DEBT TO INCOME RATIO? To calculate your debt to income ratios, add up all your monthly debt payments (ONLY MINIMUM MONTHLY PAYMENTS ON YOUR CREDIT REPORT+ YOUR TOTAL HOUSING EXPENSE/RENT and divide them by your gross monthly income. Your total gross monthly income is the amount of money you have earned before your taxes and other deductions are taken out on your paystubs
For example, your new projected expenses ONLY PAYMENTS ON YOUR CREDIT REPORT + NEW FHA MORTGAGE PAYMENT
with your new mortgage are as follows:
+$1500 a month for your rent
+$300 a month auto loan and
+$400 a month for the rest of your debts.
=$2200 For your total monthly debt payments.
If your total gross monthly income is $6000 = All FHA Mortgage applicants on your mortgage application.
36.66% is your then your debt-to-income ratio ($2200 credit payments / 6000 total gross monthly income = is 36.66%.
Evidence received from FHA mortgage lenders show that defaults come from borrowers with the higher debt to income ratios are more likely to default on FHA monthly mortgage payments. The 43 percent is the maximum debt to income ratio loan for borrowers under a 620 credit score.
There are some exceptions. For instance, a small creditor must consider your debt-to-income ratio, but is allowed to offer a Qualified Mortgage with a debt-to-income ratio higher than 43 percent. In most cases your lender is a small creditor if it had under $2 billion in assets in the last year and it made no more than 500 mortgages in the previous year.
FHA mortgage lenders may still make a mortgage loan if your debt-to-income ratio is more than 45 percent, even if this prevents it from being a Qualified Mortgage. But they will have to make a reasonable, good-faith effort, following the CFPB’s rules, to determine that you have the ability to repay the loan.
HOW DOES DEBT TO INCOME EFFECT MY PURCHASE POWER? Stable Income and Credit payment history are the two most important factors determining factors when it comes to qualifying for a FHA mortgage. On the other hand, income is more important when it comes to qualifying for a FHA mortgage loan. You can have the most perfect credit possible, and have tons of cash for a large down payment, but if you have little to little or no income left after all of your monthly obligations, then you will not qualify for an FHA mortgage. On the other end, if you had bad credit in the past, with collection accounts, prior foreclosure bankruptcy, charge offs and collection accounts, as long as you have stable and predictable income and your now paying all your bills on time then you will qualify for a FHA mortgage. FHA is extremely flexible when it comes to bad credit, no credit, lack of credit FHA mortgage approvals. You can qualify for an FHA mortgage with only 3.5% down payment with a Fico credit score as low as 580. FHA mortgage applicants with credit scores between 500 FICO and 579 FICO can qualify for FHA Mortgage Loans as long as they can put a 10% and prove the ability and willingness to make timely payments according to FHA guidelines.