FHA Debt-to-Income Ratio Requirement
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What is DTI ratio?
The debt-to-income (DTI) ratio allows lenders to measure a borrower’s ability to manage monthly payments and repay debts. The debt ratio paints a clear picture of whether borrowers are financially able to purchase a home and the associated living costs that come with it. The debt-to-income ratio is an FHA loan requirement that considers these two factors.
The first ratio is the mortgage payment expense compared to the effective income. You take the proposed mortgage monthly payment with this ratio and divide it by the buyer’s gross income.
The second ratio is the total of all debts, installment, and revolving accounts, combined with the proposed housing payment versus the borrower’s effective income. For this equation, take your monthly mortgage payment, add all your debts and divide it by the gross monthly income.
FHA DTI Limits
Every lender uses different criteria in qualifying borrowers based on debt-to-income ratios. The FHA guideline for the back-end ratio is 456%; some lenders can go as high as 55%. We offer FHA home loans with a back-end ratio requirement of up to 57% with compensating factors. This allows a borrower to purchase a slightly higher-priced home.
FHA Compensating Factors
Credit, Income, and Asset constitute a mortgage loan; all three must be present. If one of these factors is below par, the other two may compensate for the lack thereof. Several factors may compensate when one aspect is lacking. Generally, if a borrower’s credit score is at 580 and the file is not getting approval from the Automated Underwriting System (AUS), a higher down payment or lower loan-to-value (LTV) may help. Conversely, having an additional income, thus, lowering your DTI, may help generate an automated approval. In short, a higher down payment or a lower DTI ratio may compensate for the lack of credit.
Specific guidelines and requirements can be obtained by contacting our FHA Home Loan Specialist at 800-854-4142.
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Our FHA Loan Specialists are always available to help you and answer any questions. You may contact a dedicated FHA Loan Specialist through our website or by calling us directly. You may also chat with us to get a quick answer to your questions.
We Make The FHA Loan Process Quick & Easy
Lenders often times will steer their clients away from an FHA loan due to their inexperience with the program. FHA Loans are a great source of funding for our clients. We share our knowledge and experience with FHA loans, making it easier for borrowers.
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The Federal Housing Administration requires lenders offering FHA loans to go through an extensive approval process. We are FHA-approved and designated as a “Full Eagle” FHA mortgage lender offering FHA-insured home loans in Texas.