March 8, 2018
What goes into your FHA mortgage payment? It’s easy to assume that you’re paying principal and interest, divided by the number of months you are obligated to on the mortgage note. But is that really all that goes into your monthly mortgage bill? The short answer is no, there’s more to it than that.
FHA Loan Rules For Debt-To-Income Ratios
HUD 4000.1, the FHA single family home loan handbook, has instructions for the lender to help determine a borrower’s credit-worthiness. The lender doesn’t just calculate the amount of your income versus how much debt you have going out on a monthly basis-that debt ratio has to be calculated with and without the mortgage payment to see what percentage of your monthly income is taken up by debt.
The formula is found in HUD 4000.1, which includes the following:
“The Mortgagee must verify the integrity of all data elements entered into the AUS to ensure the outcome of the Mortgage credit risk evaluation is valid including:
-Borrower’s Credit Report
-Borrower’s Liabilities/Debt
-Borrower’s Effective Income
-Borrower’s Assets/Reserves
-Adjusted Value
-Borrower’s total Mortgage Payment including Principal, Interest, Taxes, and Insurance (PITI)”
Note that the “total mortgage payment” includes items that are not related to the principal or interest. The next section of FHA loan rules explains what is considered part of the borrower’s monthly mortgage obligation.
FHA Loan Rules For Calculating The Total Mortgage Payment
Your loan officer must calculate a set of expenses that all add up to your monthly mortgage obligation. HUD 4000.1 explains:
“The Borrower’s total Mortgage Payment includes:
-Principal and Interest (P&I);
-real estate taxes;
-hazard insurance;
-flood insurance as applicable;
-Mortgage Insurance Premium;
-HOA or condominium association fees or expenses;
-Ground Rent;
-special assessments, including any assessments related to a PACE obligation;
-payments for any acceptable secondary financing; and
-any other escrow payments.”
Note that there are several things combined into this list that add up to your total monthly mortgage obligation. Some borrowers in the earliest stages of home loan planning don’t realize there are added financial obligations such as flood insurance where applicable, ground rent, any required hazard insurance, etc.
Borrowers who need to negotiate the secondary financing issue with their lender should have a conversation about that as soon as possible; FHA loan rules are not the only ones that will affect such transactions. Lender standards will also play an important role in determining how to proceed in this area.
You can always turn to the help of an online mortgage loan calculator to help you arrive at an estimate of what these costs will look like combined into your monthly mortgage payment.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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