Debt to Income Ratio with FHA Loans

You will find debt to income requirements with FHA loans are in place to keep homebuyers in a healthy financial position. Time shows that having limits helps to keep both the lender and the borrower out of difficult situations. With debt limits, you will be in a better position to pay the mortgage in a timely manner. That helps the lender keep their risk level down and helps them justify giving you the best interest rates on the market. With high levels of debt, the lender has a higher risk that you will default on the mortgage. Lenders do not like high levels of risk.

The first part of this calculation is mortgage payment expense to effective income ratio. To make this calculation, you take the amount of your total monthly mortgage payment and divide it by your gross income. That total mortgage payment must include the principal and interest as well as your escrow costs and any homeowner association dues you pay. This amount is what you will take on in order to live in this particular home. In order to qualify for an FHA loan, this ratio must not be more than 29%. When looking at debt to income requirements with a FHA mortgage, the lender wants to make sure your new home is not too big of a burden.

The second part of this calculation is the total fixed payment to effective income. This calculation involves the total of all your debt payments divided by your gross income. The total of your monthly debt payments are the payments you make on your home loan, student loans, car loans, credit cards, and other lines of credit each month. When you divide this amount by your gross income, the ratio cannot be higher than 41%. Lenders want to make sure you meet the debt to income requirements with FHA home loans for their risk management.

Taken together helps lenders make a decision on whether to write the loan or not. If you meet these criteria, you have made the leap to the next level of determining if you meet FHA requirements for a new mortgage. These debt to income requirements with FHA loans are not the only factor however. Lenders will look at your credit and income as well as other factors. In order to qualify for an FHA loan, you need to meet certain requirements however. The DTI is only one of them.