Articles in Category: Debt Ratios

June 6, 2012

FHA Loans and Verifiable Income: Alimony, Child Support, and Maintenance Payments

Borrowers applying for an FHA home loan have good reason to consider listing alimony, child support, and maintenance payment income on their loan applications. Not all wish to have this type of income included in their application data, but when accompanied by proper documentation and when verified by the lender, these types of “non-employment income” can be used to help calculate the borrower’s debt-to-income ratio for FHA loan approval. But what does the FHA require in order to verify and approve these income sources for the FHA loan? According to the FHA official site, “Alimony, child support, or maintenance income may be considered effective, if –payments are likely to be received consistently for the first three years of the mortgage –the borrower provides the required documentation” What does that documentation | more...

May 31, 2012

FHA Loans and Student Loan Deferments

By Joe Wallace

A reader asks, “If applying for FHA and student loans are in deferment until after the closing date, does it have to show a year after the first payment is due? For example, if the payment is due July 1, 2012 does it have to show July 15, 2012 or later?” This question is addressed in the FHA loan rules spelled out in HUD 4155.1, Chapter 4 Section C. It’s covered in the section titled, “Borrower Liabilities: Projected Obligations and Obligations Not Considered Debt” and includes a list of things the FHA does not consider debt for the purposes of calculating a borrower’s debt-to-income ratio for an FHA home loan. Student loans are specifically addressed in this section, which states, “Debt payments such as a student loan or balloon note | more...

February 22, 2012

FHA Loan Income Requirements

By Joe Wallace

A reader asked us recently whether there were any minimum income requirements for FHA condo loans. While the FHA does not place a dollar amount or set a minimum income, it does have standards for verifiable income which must be met in order to qualify for the FHA mortgage loan. These standards have more to do with stability of income, and the ratio of monthly financial obligations to that income than the amount itself. The lender is required to determine whether the borrower can realistically afford the FHA monthly mortgage payment when factored in with the rest of the loan applicant’s obligations. So how does the FHA lender analyze the borrower’s income? FHA rules state clearly, “The lender must analyze the income of each borrower who will be obligated for | more...

February 14, 2012

FHA Loan Debt To Income Ratios: Do Student Loans Count?

By Joe Wallace

FHA loans require the lender to calculate the borrower’s debt-to-income ratio to determine if the applicant can realistically afford to make a monthly FHA mortgage payment. The borrower’s debts are reviewed and compared to the amount of money coming in–if the ratio is within FHA requirements, the loan can be approved (assuming the borrower meets the other FHA loan criteria). Some borrowers are rightfully concerned about the amount of debt they bring to the bargaining table. Too much debt and the borrower could be denied the FHA home loan. But not all financial obligations are necessarily counted toward the borrower’s debt-to-income calculation. FHA loan rules say some debts, usually with 10 months or less remaining on the payment agreement, do not have to be counted. The lender may choose to | more...

February 14, 2012

FHA Loan Questions: Debt-To-Income Ratios

By Joe Wallace

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 | more...

December 6, 2011

FHA Loan Debt To Income Ratio Rules

By Joe Wallace

In recent blog posts we’ve been examining the FHA loan debt-to-income ratio rules. The FHA requires borrowers to have a combined monthly debt load and projected FHA home loan obligation that does not exceed 41% of the borrower’s income. As stated in previous blog posts, FHA guidelines require the lender to examine the borrower’s monthly debts and compare to his or her monthly income. The total amount of debt including credit card payments, auto loan payments, student loans, and other payments, is added together, then combined with the total amount due each month for the FHA home loan. That figure does not just include the mortgage payment itself–it also includes any home owner association dues, amounts which must be deposited in escrow for property taxes and insurance, etc. When the | more...

December 6, 2011

FHA Loans and the Debt To Income Ratio: Projected Debt

By Joe Wallace

In a previous blog post, we mentioned the importance of the debt to income ratio as part of the FHA loan application process. Calculating the debt to income ratio for the purpose of underwriting an FHA mortgage loan includes adding up the entire monthly mortgage obligation (principal and interest, escrow for taxes, hazard insurance, mortgage insurance premium, and any homeowners’ association dues) and reviewing all revolving and installment debt due per month. These can include personal and automobile loans, student loans, credit card debt and more. These amounts are combined and divided by the borrower’s verified gross monthly income. FHA rules say the maximum ratio to qualify is 41%. But when calculating that debt to income percentage, the FHA requires lenders to examine not only current financial obligations but also | more...

December 5, 2011

FHA Loans and the Debt To Income Ratio

By Joe Wallace

The debt to income calculation is a very important part of a borrower’s FHA loan application review. The lender must analyze the amount of verified income and compare it to the amount of debt the borrower has to see whether the borrower can afford his or her current monthly obligations and the projected monthly FHA mortgage loan payment. To do this, the lender takes income (only income which can be verified as stable and reliable) and compares it to all current debt and calculates what percentage the debt takes of the verified income. How is this done? The lender adds up the total mortgage payment, which includes principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners’ dues, and any other payments that are considered part of | more...

June 20, 2011

Can I Use Rental Income on My FHA Loan Application?

By Joe Wallace

An FHA loan applicant who owns a property he or she is currently renting would naturally want to include that income on the loan application. As with all other sources of income, the borrower must not only list the amount of that income, but also be able to show to the lender that the money is stable. Since an FHA lender is charged with verifying all sources of income, the borrower must provide proof that rent money coming in is likely to continue. What does the FHA require as proof of dependable income when it comes to rent payments? According to the FHA official site, “Examples of stability may include a current lease, an agreement to lease, or a rental history over the previous 24 months that is free of | more...

April 20, 2011

FHA Loans and Retirement Income Verification

By Joe Wallace

When applying for an FHA home loan, the borrower must list all sources of income so they can be verified as part of the loan approval process. The lender is required to check all sources of income to insure they are dependable and “likely to continue” into the future, according to the FHA official site. Income verification helps the lender accurately determine a borrower’s debt-to-income ratio; without knowing that ratio it’s impossible to issue a loan with any degree of certainty that it would actually be repaid.