July 18, 2012
When a borrower applies for an FHA home loan, the lender must analyze the applicant’s debt-to-income ratio in order to approve the loan application. That ratio is basically described in FHA loan rules as the amount of verifiable income versus the amount of debt the borrower has.
But that’s not the only factor in the equation when the lender is trying to insure the borrower is a good risk for an FHA mortgage loan. According to the FHA official site, the lender must establish whether the borrower can afford his or her current financial obligations AND the amount of the new obligations under the FHA mortgage.
According to Chapter Four of the FHA loan rules (HUD 4155.1), “The relationship of the mortgage payment to income is considered acceptable if the total mortgage payment does not exceed 31% of the gross effective income.”
Can an FHA loan applicant ever be qualified for the loan if the amount is higher than 31% of the gross effective income? The FHA does make allowances in certain situations. “A ratio exceeding 31% may be acceptable only if significant compensating factors, as discussed in HUD 4155.1 4.F.3, are documented and recorded on Form HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary.”
One thing that some borrowers overlook when trying to do these numbers on their own is the amount of the total mortgage payment–which is not simply the amount the borrower owes every month on the base loan amount plus interest. Borrowers should keep in mind the FHA definition of the total mortgage payment:
” The total mortgage payment includes
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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