August 20, 2017

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FHA Loan Questions: Debt-To-Income Ratios

When you apply for an FHA home loan, you’re required to list all current debts and other financial obligations. This helps the lender calculate the debt-to-income ratio, which must fall within the FHA required percentage. Borrowers should know what the FHA and HUD.gov say about the debt-to-income ratio percentages;

“…monthly mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, 4 should total no more than 41% of income. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.

Borrowers should be concerned with the amount of debt they currently have before applying for an FHA home loan. Paying off credit cards and closing unneeded open lines of credit should be a priority for borrowers in the year leading up to the FHA mortgage loan application.

With these things in mind, one reader asks an important question about how the FHA and the lender view certain types of debt.

“We have about 10-11 payments left on the car loan? Years ago, if a car loan was under one year remaining, it was not counted as part of the regular debt-to-income, is that still true today?”

FHA loan rules address this issue very specifically. According to the FHA, “When computing the debt-to-income (DTI) ratio, the lender must include the following recurring obligations:

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