Articles in Category: Debt Ratios

FHA Home Loans And First Time Home Buyers

October 31, 2017

What Are The Income Requirements For An FHA Loan?

What are the income requirements for an FHA loan? Some aren’t sure if they earn enough to qualify for an FHA mortgage, and others are worried that they might earn “too much” to qualify, mistakenly believing that FHA loans are only for people within a certain income bracket. What’s the reality? FHA Loans Are For Anyone Who Qualifies There is no minimum income requirement for an FHA mortgage, and there is no upper limit or income “ceiling”. FHA loans are not targeted for any one income bracket. It is true that FHA loans are designed with more lenient FICO score minimums in mind, but that has nothing to do with the amount of your annual income or how you earn that income. Basic FHA Loan Income Requirements There ARE FHA | more...

October 19, 2017

How Does FHA Deal With A Borrower’s Financial Hardship? Part Two

By Joe Wallace

How does FHA deal with a borrower’s financial hardship? That is a question we began addressing in a previous blog post, starting with an examination of the FHA attitude toward things like public assistance income, credit counseling programs, etc. In general, FHA loan rules do not allow borrowers to have public assistance income held against them as a liability, and participating in a credit counseling program is not grounds for denying an FHA mortgage loan. All income, including public assistance, must meet FHA loan standards for dependability and the likelihood of that income continuing. But just because the income is from public assistance, Social Security, etc. does not mean that income is not a valid means of financially qualifying for an FHA mortgage. Borrowers With Temporary Reductions of Income One | more...

October 18, 2017

How Does FHA Deal With A Borrower’s Financial Hardship?

By Bruce Reichstein

How does FHA deal with a borrower’s financial hardship? That is an important question, and the answers may surprise some who expect the same types of financial qualifications from FHA mortgages as from conventional loans. What is the reality? Basic FHA Loan Financial Requirements FHA loan FICO score minimums are 580 and higher for maximum financing and the lowest down payment. Lenders may have higher requirements, but the FHA minimum FICO score allows those who wouldn’t be considered for a conventional mortgage. Debt-to-income ratio requirements for FHA mortgage loans (which may vary depending on FICO scores) will vary some among lenders, too but you’ll find that your total payments must not (generally speaking) exceed 43% of your monthly income. How Does FHA Deal With Financial Hardship? Depending on the nature | more...

What Credit Score Is Needed For An FHA Mortgage?

September 29, 2017

FHA Loans, Income Verification, And Rental Income (Part Two)

By Joe Wallace

In our last blog post, we discussed some basic FHA loan rules about using rental income to qualify for an FHA mortgage loan. Some borrowers are interested in purchasing a multi-unit property that they intend to live in as their primary residence, with the goal of renting out unused living units. FHA loan rules permit this only when the borrower lives in the property; you cannot plan to be an absentee landlord and expect FHA loan approval. In our last blog post, we wrote: “It is reasonable to expect that such a borrower would want to know if she could use projected rental income from that arrangement as ‘verifiable income’ for the purposes of loan approval. Can the borrower reasonably expect a lender to approve of income from this rental | more...

September 28, 2017

FHA Loans, Income Verification, And Rental Income From Other Properties (Part One)

By Bruce Reichstein

In a previous blog post, we discussed the issue of a borrower using projected rental income from the property to be purchased with an FHA mortgage. Some borrowers are interested in purchasing property that they intend to live in as their primary residence, while planning on renting out unused living units in a multi-unit property. It is reasonable to expect that such a borrower would want to know if she could use projected rental income from that arrangement as “verifiable income” for the purposes of loan approval. Can the borrower reasonably expect a lender to approve of income from this rental situation when calculating the borrower’s debt-to-income ratio? This is possible in situations that meet FHA loan approval; some scrutiny will be given to a borrower’s rental income history or | more...

Rehab Refinance Loans, Effects Of The Pandemic, And Interest Rates

September 25, 2017

Which Debts Are Evaluated For My FHA Home Loan?

By Bruce Reichstein

Which of my debts are evaluated for an FHA home loan? Borrowers sometimes get nervous about this issue, especially if they are concerned about carrying too much debt to qualify for a home loan. FHA loan rules governing how a borrower’s debt load must be reviewed by the lender are found in HUD 4000.1. One section titled “General Liabilities and Debts” states: “The Mortgagee must determine the Borrower’s monthly liabilities by reviewing all debts listed on the credit report, Uniform Residential Loan Application (URLA), and required documentation.” The basic answer to the question may depend on whether the lender is manually underwriting the mortgage loan or using the TOTAL system to evaluate the application. TOTAL is an “automatic” underwriting tool, and when using this tool, the lender is instructed as | more...

August 24, 2017

Do Section 8 Housing Vouchers Count For FHA Loans?

By Bruce Reichstein

There are many different types of income that can be used to qualify for an FHA home loan. While there is no minimum or maximum income requirement to qualify for an FHA mortgage, the borrower’s debt-to-income ratio, stability and duration of income, and other factors will be scrutinized as part of the loan application process. Some income is simple to verify. Other types of income have have additional requirements. That is true of certain public assistance including Section 8 Housing Choice vouchers and income received from government-run public assistance programs. In these cases the duration of the payments will be an important factor. Using Section 8 Housing Choice Vouchers As Income The FHA loan handbook, HUD 4000.1, states on page 210 that a lender is responsible for verifying the nature | more...

August 11, 2017

FHA Mortgage Questions: What Is Undisclosed Debt?

By Joe Wallace

What is undisclosed debt and how can it affect your FHA home loan application? Undisclosed debt is basically credit information that is either not listed by the borrower on the credit application, or debt that does not show up yet on a credit report. There are several reasons why a lender would be concerned by undisclosed debt and FHA loan rules anticipate situations where such problems occur. Undisclosed Non-Mortgage Debt FHA loan rules for this type of debt which is not volunteered by the borrower on a mortgage application (or does not show up on the borrower’s credit report) are found on page 187 of the FHA loan handbook, HUD 4000.1. There we find these instructions to the lender: “When a debt or obligation (other than a Mortgage) not listed | more...

Can my seller pay some of my closing costs?

June 21, 2017

FHA Loan Income Requirements

By Joe Wallace

How much or how little can you earn and still qualify for an FHA loan? Do you know what the FHA loan income requirements are for the type of mortgage loan you seek? The truth is, the FHA home loan program does not specify a minimum (or maximum) dollar amount necessary to qualify for an FHA home loan or FHA refinance loan. Instead, the lender is required to make sure you qualify with FICO scores, credit history, and an acceptable debt-to-income ratio. FHA Debt To Income Ratio There are two ways your participating FHA lender will review your income compared to your financial obligations in order to qualify you for an FHA mortgage. The first is to review the amount of verifiable income you bring in and compare it to | more...

May 4, 2017

Part Time Income: FHA Loan Rules

By Joe Wallace

What are the rules for using part time income to qualify for FHA loans? A reader asked us a question on that topic in our comments section this week: “I have a client that worked full time for a company for eight years. In the last eight months he went to half time. Why cant we use this income since hes been at the same employer for more than 2 years?” Instructions to the lender on this issue are found in HUD 4000.1. There, we learn that for all income sources, the lender is required to do some calculations. “For employees who are paid hourly, and whose hours do not vary, the Mortgagee must consider the Borrowers current hourly rate to calculate Effective Income. For employees who are paid hourly | more...