Articles in Category: Debt Ratios

February 2, 2018

How Do Student Loans Affect My FHA Home Loan Application?

How do student loans affect my FHA home loan application? Some applicants worry about the amount of student loan debt they carry; after all the lender is required to determine the borrower’s debt-to-income ratio as a means to judge whether the loan is affordable or not. The debt ratio must be calculated using existing monthly debt, including student loans that are in forbearance. The fact that the loans are not being paid on at application time isn’t as critical as the idea that the loans may become a monthly obligation in the future, affecting the borrower’s ability to pay the mortgage loan. What do FHA loan rules say about student loans, and those student loans that are in deferment or forbearance? We use those two terms interchangeably here, defined as | more...

January 23, 2018

FHA Loan Rules For Debt-To-Income Ratios: Business Debt

By Bruce Reichstein

FHA loan rules for debt-to-income ratios (DTI) include guidelines for the lender when the loan applicant has debts listed in his or her name, but those debts are actually those of the borrower’s business. What do you need to know about this type of debt? Before addressing that issue, it’s important to point out that debt ratios are a very important part of the FHA loan approval process. The higher the amount of your monthly debt compared to your monthly income, the harder your loan officer has to work to justify approving the loan. A borrower with too much monthly debt may be required to have compensating factors as a condition of loan approval. Those factors can be a larger down payment, substantial savings in cash, or other things as | more...

December 6, 2017

FHA Loan Rules For Income Verification: Part-Time Employment Income

By Joe Wallace

Is it possible to be approved for an FHA home loan using part-time employment income? There are indeed FHA loan rules for this type of income and instructions to the lender for how it is to be reviewed. HUD 4000.1, the FHA home loan handbook, states that all verifiable income must meet certain FHA minimum requirements including the ability to verify two years of employment (not necessarily with the same employer). One area some borrowers may be concerned with in this area is part-time income. Does the FHA allow a lender to verify and count as income the earnings from a part-time job? The rules for this are found on page 200 of HUD 4000.1, which begins by defining what the FHA considers part-time income: “Part-Time Employment refers to employment | more...

December 4, 2017

FHA Home Loan Rules For Salary, Hourly, Part-Time Income

By Joe Wallace

Not every home loan applicant has the same type of employment, compensation, or schedule of compensation. That’s why FHA home loan rules in HUD 4000.1, the FHA single family home loan handbook, include different instructions to the lender for a diverse range of income sources. FHA Loan Rules For “Primary Income” HUD 4000.1 has sections for hourly income, salary, and part-time income. The section that includes these guidelines states that the lender is responsible for examining earnings from the home loan applicant’s “primary employment” and defines it as follows: “Primary Employment is the Borrowers principal employment, unless the income falls within a specific category identified below. Primary employment is generally full-time employment and may be either salaried or hourly.” “Current Pay” Versus “Projected Pay” According to HUD 4000.1, FHA loan | more...

November 29, 2017

FHA Loan Rules For Loan Approval: Federal Debts and Tax Liens

By Joe Wallace

FHA loan rules for loan approval include instructions to the lender about unpaid federal debts and tax liens. Your chosen participating FHA lender is responsible for verifying your income, employment record, and your monthly financial obligations-which may include tax obligations such as a lien, or a federal debt. Unresolved taxes and federal debt can be a serious issue that will affect a home loan application. The status of such debt is one of the most important factors. According to HUD 4000.1, “Mortgagees are prohibited from processing an application for an FHA-insured Mortgage for Borrowers with delinquent federal non-tax debt, including deficiency Judgments and other debt associated with past FHA-insured Mortgages.” The FHA loan rules in this section also add that the lender is required to determine “whether the Borrower(s) have | more...

November 27, 2017

FHA Loan Rules: Using Rental Income to Qualify for a Mortgage Loan

By Bruce Reichstein

What do FHA loan rules say about using rental income to qualify for an FHA home loan? Is it possible to use rental income according to the FHA loan handbook, HUD 4000.1? The short answer is that it depends on whether or not the rental income meets FHA loan minimum standards. When processing your home loan application, your participating FHA lender will request copies (never originals) of the relevant paperwork associated with your employment and income, including tax documents, W2 forms, pay stubs, etc. If your income is derived in whole or in part by rent payments, the lender will need to see documentation for that, too. FHA loan rules in HUD 4000.1 address this on page 202, starting with the definition of what is considered rental income under the | more...

November 24, 2017

Late or Missed Payments and FHA Loan Applications

By Joe Wallace

Is it possible to get an FHA loan application approved with late or missed payments on your credit report? It’s easy to get caught up in a struggle with common financial problems, and some of the simplest situations (late and missed payments on financial obligations) can have the biggest impact on a borrower’s credit rating or perceptions of creditworthiness. Having a handful “lates” and/or missed payments in your recent credit history might not affect your overall financial bottom line IF you’re not planning to seek new lines of credit. But if you are planning to apply for a home loan in the 12 months following late or missed payments, this situation becomes far more important. FHA loan applications, like other major lines of credit, are affected by anything that changes | more...

November 10, 2017

FHA Loan Debt-To-Income Ratios Part Two

By Bruce Reichstein

What is the debt-to- income ratio (DTI) for an FHA loan? We answered that question in a previous blog post, discussing the FHA loan rules for loan approval where loan affordability is concerned. In general, FICO scores and debt ratios are reviewed together. You may have a debt ratio that comes close to or exceeds the general standard for these limits, but compensating factors may apply to help the lender justify approving your home loan. What are these factors? FHA Loan Compensating Factors For Higher Debt-To-Income Ratios FICO scores play an important part in determining who must have compensating factors for a high DTI. As the FHA loan handbook states, borrowers who meet the FHA loan FICO score requirement for maximum financing (580 or above) can have a debt to | more...

November 10, 2017

What Is The Debt-To-Income Ratio For An FHA Loan?

By Joe Wallace

What is the debt-to- income ratio for an FHA loan? Simply put, it’s the amount of income you have compared to the amount of money you must pay each month on your financial obligations. The debt-to-income ratio (DTI) is an important part of the lender’s calculations that determine whether or not you will be approved for the mortgage loan. Debt-To-Income Ratio Calculations For FHA Loans There are two kinds of debt-to-income ratio calculations. One is made with the borrower’s current income and debts, the other is made with those factors plus the amount of the projected monthly mortgage payment. If you aren’t sure whether you can afford a mortgage loan or not, the second ration will tell you what percentage of your pay will be taken up by your monthly | more...

Rent Or Buy? Arguments For Purchasing A Home With An FHA Mortgage

October 31, 2017

Income Requirements For An FHA Loan Part Two

By Joe Wallace

In a recent blog post we discussed income requirements for an FHA loan including basic debt-to-income (DTI) ratio issues, the fact that your income must be stable and reliable, and that you can’t earn “too much” to qualify for an FHA mortgage. One question some FHA loan applicants have at this point involves how the lender arrives at things like the debt to income calculation, how job reliability is determined, etc. How Does The Lender Calculate My Debt To Income Ratio For An FHA Home Loan? Simply put, the loan application will ask. You will have places in your application which ask about your monthly obligations, and the lender will also check your credit reports to see what active accounts you have. Some borrowers may be tempted to omit certain | more...