FHA Debt to Income Ratios

The FHA debt to income ratios are basically a set of rules in place to make sure homebuyers do not purchase a home they cannot afford. The FHA wants to make sure borrowers qualify for the loan according to set debt to income ratios. These ratios are used to calculate if the potential borrower has enough monthly income and not too much debt so that they meet the financial demands that are often included in owning a home.

Remember, FHA loans are guaranteed by the Federal Housing Administration so they want to make sure you can make your payments.

The first ratio is:

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) and divide it by the gross monthly income. The maximum ratio to qualify is 29%.

Total amount of new house payment: $1,400.00
Borrower's gross monthly income (including spouse, if married): $5,000.00
Divide total house payment by gross monthly income: $1,400/$5,000
Debt to income ratio = 28%

Congratulations you passed the first test! (just barely)

The second ratio is:

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.) and divide it by the gross monthly income. The maximum ratio to qualify is 41%.

Total amount of new house payment: $1,400.00
Total amount of monthly recurring debt: $700.00
Total amount of monthly debt = $2,100.00
Borrower's gross monthly income (including spouse, if married): $5,000.00
Divide total monthly debt by gross monthly income: $2,100/$5,000
Debt to income ratio = 42%

Uh oh, we failed the second test.

What do you do now? All we need to do is reduce the monthly debt payments by $50. If the monthly debt was $2,050, then the debt to income ratio would be $2,050/$5,000 = 41%. Then we would pass and have a good shot at being approved for an FHA loan.

OF course I have to mention that the above debt to income ratios do not exclusively determine whether or not a candidate will qualify for an FHA loan. Other factors will be considered.

Once you have the FHA debt to income ratios figured out, you can
return to our FHA Loan section or our Arizona Mortgage Loans section.