FHA Guidelines on Debt Ratios
At this point of your file evaluation, an FHA lender will examine your monthly income, and your monthly debts to calculate your debt ratios. This will determine the size of loan you will be able to qualify for.
FHA uses two different kinds of debt ratios to analyze these figures:
- Front-End Ratios take your gross income and divide it by the PITI (the sum of your principle, interest, taxes, and insurance) mortgage payment. This standard guideline is 29%.
- Back-End Ratios take your gross income and divide it by the new PITI mortgage payment and also your minimum monthly payments from your liabilities. The standard guideline is 41%.
Typical debts are used to determine your ratios. They are:
- Your current and future house payment
- Auto loans with over 9 months left of payments
- Student loans with over 9 months left of payments
- Personal loans with over nine months left of payments
- Charge Cards
- Child support with over nine months left of payments
- Alimony with over nine months left of payments
- Federal Tax Lien Repayment Schedules with over nine months left of calculated payments
- Utility Bills
- Car Insurance
- Health Insurance
- Cell Phone Bills
- Any additional bills not reflected on your credit report
38% of your income is the maximum that should be paid on all debts, including your house payment. If this is not how things are with your income now, it is a good goal to set for yourself. Under the FHA guidelines, you are permitted to spend up to 41% of your monthly income on your debts.
Here is an example of the income to debt calculation to practice with:
- Income=$3,000
- New Mortgage Payment=$900
- Minimum Monthly Payments=$300
- "Mortgage" divided by "Income"=30%
- "Mortgage + Monthly Payments" divided by "Income"=40%
In order to lower the ratios, you can lower the interest rate or the loan amount according to your needs. If your ratios are not within these designated limitations, that does not mean you will not qualify for an FHA loan. Speak to one of our mortgage professionals today to find out what you need to do to turn your numbers around.
