Articles in Category: Debt Ratios

May 22, 2023

Does Income Affect FHA Loan Approval

The short answer to the question, “Does your income matter” regarding FHA loan approval? Yes, it does. But not the way some borrowers might think. Do you know the issues important to your loan officer when considering an FHA loan application? Income is an essential part of the equation based on the age, dependability, and nature of your earnings. Your income matters if you want to buy or build a home with an FHA mortgage. But there are some misconceptions about home loan approval regarding income. Do you know the difference between the facts and the fiction about home loan income requirements? FHA Home Loans: No Minimum Income FHA loan rules do not specify a minimum earning amount per day, week, month, or year. To be approved for an FHA | more...

October 19, 2022

FHA Home Loan Approval And Debt Ratios

By Joe Wallace

How is FHA home loan approval affected by your debt ratio? Your credit qualifications including FICO scores and credit history are very important factors in home loan approval, but the amount of debt you carry is also a factor. Your participating FHA lender must evaluate your monthly debt versus your monthly income to determine if you can realistically afford the mortgage. How does the lender do this? The rules governing this process are found in the FHA loan handbook, HUD 4000.1. It begins by stating that the lender is required to “determine the Borrower’s monthly liabilities by reviewing all debts listed on the credit report, Uniform Residential Loan Application (URLA), and required documentation”. The lender must review all monthly financial obligations but some things may not necessarily be included in | more...

When Is An FHA Loan Better Than A Conventional Loan?

August 26, 2022

FHA Loans And Community Property States

By Joe Wallace

One of the most common questions we are asked about FHA mortgages involves state community property laws, non-borrowing spouses, and their credit issues. Does an FHA loan applicant have to include a non-borrowing spouse’s financial data when applying for an FHA mortgage? It all depends on whether the state the borrower is living in has community property laws or not. In cases where such laws are present, the transaction may be affected. FHA loan rules on this topic are addressed in HUD 4000.1, starting on page 180. It begins with a definition: “Non-Borrowing Spouse Debt refers to debts owed by a spouse that are not owed by, or in the name of the Borrower.” In cases where a borrower lives in a community property state, where state law has a | more...

January 27, 2022

FHA Home Loan Approval Problems: New Credit Applications

By Joe Wallace

You may have heard advice about seeking new credit while you are in the home loan process. Much of this advice is definitely applicable. Anyone who advises you NOT to apply for new credit once you have started your home loan journey is thinking with your best interests in mind, but what is it about this advice that makes it so critical? A lender doesn’t pull your credit reports just once during the home loan process and if your lender sees new information that potentially changes your ability to qualify for the mortgage it may be necessary to re-approve you for the loan. And that’s just the presence of new credit in your report. What about how a new line of credit potentially affects your debt-to-income ratio? When you apply | more...

January 19, 2022

Is A Second FHA Loan Possible?

By Joe Wallace

Is it possible for borrowers to apply for second FHA loans, resulting in paying on two mortgages at once? Here is a variation on a common reader question about this issue: “I relocated to another state over 400 miles away. Will I be able to get an FHA loan even though I still own my first home?” There’s no one single answer to a question like this. Aside from FHA loan rules, a borrower’s credit rating, loan repayment history, and debt-to-income ratio may all play a part in whether a lender is able to approve or deny an FHA loan. In cases like these, one of the most important factors would be (all other considerations aside) focused on the borrower’s debt-to-income ratio. With an existing mortgage payment, will the borrower | more...

September 29, 2021

Do FHA Home Loans Have An Income Cap?

By Joe Wallace

Some borrowers learn that FHA mortgage loans are government-backed and guaranteed by the FHA and HUD, which can lead to certain assumptions about the nature of a government-backed mortgage. One of the misconceptions about FHA home loans is that due to their government association have either an income limit, or are otherwise need-based. Some borrowers might be confusing the government-backed USDA loan program with the FAH loan rules. USDA loans ARE need based. However, FHA loan rules in HUD 4000.1 do not specify a maximum income and do not require a specific financial need to qualify. FHA loans do not have a low-income requirement, a household income cap, or a requirement that you be a first-time buyer. These loans are instead designed for those who want to purchase a home | more...

July 23, 2021

How Early Should You Use A Mortgage Calculator?

By Joe Wallace

The short answer? The moment you think you want to commit to being a home owner, you should consider using an online mortgage calculator. A mortgage calculator can help you plan and save for your mortgage. The use of a mortgage calculator is something most real estate blogs and home loan websites encourage you to use. The most basic, entry-level finance blog advice includes “use a mortgage calculator”. But there are some things to keep in mind about using a mortgage calculator–you want to use one that includes more than just the principal and interest for your loan. If you use one that limits the input to just those two things, you won’t really get an estimate of your monthly mortgage payment. Why? Because you will need to factor in | more...

July 15, 2021

FHA Loan Interest Rates And FICO Scores

By Joe Wallace

Buying a home means paying attention to your financials–credit scores, debt repayment habits, and credit utilization rates. Paying attention to them as early as possible is an important choice when you are planning your home loan. Don’t put off working on your credit–time is not on your side if you are planning to apply for a home loan in the next 12 months if you haven’t looked at your credit scores, reports, etc. If you want to buy a home with an FHA mortgage, you generally have more forgiving credit qualification guidelines from the FHA, and that’s a great reason to use an FHA mortgage. FICO score issues can be a major worry for some borrowers, but by working on your own credit far ahead of your home loan you | more...

March 23, 2021

Preparing Your Finances For An FHA Mortgage: Debt

By Joe Wallace

The debt-to-income ratio is a calculation that your lender will use to determine the amount of your monthly financial obligations compared to the amount of income you have. The debt-to-income ratio is an important tool for the lender. The more income you have compared to outgoing payments every month the better, your lender needs to justify you as a good credit risk. So how do borrowers with a lot of debt deal with this problem? This is an important factor because if the ratio is too high yor lender can’t justify the loan. Borrowers should learn what the FHA considers to be “debt” and what things are not automatically counted as part of your debt ratio in order to view their finances the way the lender will. FHA Home Loans | more...

May 22, 2020

Home Loan Approval And The Amount of Your Debt

By Bruce Reichstein

Do you need to consider your home loan options? FHA mortgages offer much for both first-time buyers and repeat borrowers. Your choices include new purchase loans, One-Time Close construction loans, reverse mortgages, cash-out FHA refinance loans, and Streamline refinance options when you’re ready to consider a refi loan. No matter what kind of loan you need, for best results you should set aside some time in the early stages of your loan planning; review the last 12 months of credit and loan repayment history and have a good look at your debt-to-income ratio. It is vitally important to do this before the lender does. The Amount Of Debt You Carry Matters The debt to income ratio or DTI for short is one of the most important factors in the lender’s | more...