December 2, 2021

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FHA Loan Approval: Credit Scores Are Just One Factor

Buying a House In The Era of Corona

Some house hunters worry that they don’t have credit scores good enough to qualify for the mortgage. But it’s easy to lose sight of the fact that FICO scores are not the single determining factor in home loan approval.

There Are THREE Important Factors

Some FHA loan applicants come to the process knowing that both FICO scores and your record of on-time payments are crucial for loan approval. But even this is an incomplete picture of what your lender is after when trying to approve your home loan application.

By this point in our article, you are likely getting the hint that there is indeed a third factor that counts when applying for a mortgage loan, and that factor is your debt-to-income ratio.

The participating FHA lender’s job is to make sure borrowers can actually afford the cost of the FHA mortgage in addition to the applicant’s other monthly financial obligations.

And it’s not a simple thing as adding up one set of figures. Your participating FHA lender has to make two calculations to make sure you can afford your mortgage. 

Two FHA Loan Debt Ratio Calculations

The first calculation is made by adding your total mortgage payment, which will include the principal and interest plus mortgage insurance and other costs, and then dividing that amount by the applicant’s monthly income (gross income, not net income).

The highest your debt-to-income ratio can be to qualify using this calculation is 31%. This is required along with the next type of formula–the lender doesn’t get to choose one or the other.

The second FHA loan debt ratio calculation is made by adding the total proposed mortgage payment (again, adding the principal, interest and other fees of the monthly loan together) along with the total amount of your monthly debt, divided by the gross monthly income. For this calculation, the maximum ratio to qualify is 43%.

Online Mortgage Calculators Can Help

You can get a head start on your debt ratio by calculating it yourself. If your debt ratio is too high, knowing that fact early enables you to work on your debt ratio in the time leading up to your filling out application paperwork for your mortgage or fill out online forms.

And when you work on lowering the amount of your monthly debt ahead of your loan amount, avoid making the mistake of paying off old credit card accounts and closing them down. This is not advised since the older your credit accounts are, the better.

But DO reduce your monthly financial obligations–pay down or pay off the credit cards, but do not close the accounts.

During this process, be mindful of your ontime payment record–on-time payments in the 12 months or more ahead of your loan application are crucial. Keep making payments while forming a strategy to pay down your monthly debt obligations.

Bruce Reichstein - FHA News Author

By Bruce Reichstein

March 22, 2021

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 where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.

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About was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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