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FHA Debt Ratios

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FHA Debt Ratios

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

Borrowers Gross Monthly Income (including spouse if married)

$2,850

Divide Total House Payment By Gross 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

Borrowers 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.

Figuring how much you should borrow and which loan is right for you is something one of our professional’s can discuss with you.

Our experience shows that those clients that save the most money and the most time, or those with the best plan. We would be happy to discuss what your plan could look like. Fill out the simple form on the left or give us a call.

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