October 16, 2019

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Articles Tagged With: Debt-to-Income Ratio

FHA Home Loan Rules About Borrower Debt

FHA Home Loan Rules About Borrower Debt

Do you know what your lender is required to do when you fill out an FHA mortgage loan application? Part of the lender’s job is to make sure that the loan applicant can realistically afford the new home loan, and making that determination means reviewing your current debt. HUD 4000.1, the FHA Lender’s Handbook for single family mortgages, has instructions for the lender in this area. It begins stating the lender’s responsibilities: “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.” How is that accomplished? “All applicable monthly liabilities must be included in the qualifying ratio. ” Your lender will calculate your debt ratio using one method that includes only your current debt, and | more...

 
Preparing For An FHA Mortgage? What You Need To Know About "Contingent Liabilities"

Preparing For An FHA Mortgage? What You Need To Know About “Contingent Liabilities”

If you are preparing for a home loan and want to buy a primary residence with an FHA mortgage, you should know what the FHA loan rules are for “contingent liabilities” which involve the borrower. A contingent liability is a financial obligation that the FHA loan applicant has co-signed for in the past or is otherwise potentially responsible for should the main borrower default on the financial obligation. The FHA loan handbook defines contingent liabilities specifically as follows: “A Contingent Liability refers to a liability that may result in the obligation to repay only when a specific event occurs. For example, a contingent liability exists when an individual can be held responsible for the repayment of a debt if another legally obligated party defaults on the payment. Contingent liabilities may | more...

 
The Difference Between Homeowner's Insurance And Mortgage Insurance

FHA Loans For First-Time Borrowers: Debt Ratios

One area that is just as important as FICO scores and credit reports to first-time borrowers? The amount of debt versus the amount of monthly income. This is known as a debt-to-income ratio or debt ratio for short; this is just as crucial for a borrower as their FICO scores. Many borrowers already know this; they have spoken to a lender or a housing counselor, or they have done their research already and fully understand that if you have too much outgoing debt and not enough monthly income, your home loan chances are in jeopardy. But what is not as well-known? The fact that there are actually TWO debt ratios the lender will look at. Yes, there are two calculations and if you don’t anticipate the second one you may | more...

 
Homes You Can And Cannot Buy With An FHA Mortgage

FHA Loan Qualifying Credit Scores

FICO scores are a big part of getting your home loan approved as a first time home buyer or repeat borrower alike. One of the first questions someone purchasing their first home with an FHA loan will ask is what FICO scores qualify for the mortgage. And that’s not surprising; FHA loan credit qualifications do specify a minimum FICO score for all borrowers. And believe it or not, it’s the same credit score ranges for both first-time borrowers and those who have purchased real estate before. The FICO score minimums for the lowest down payment are set by the FHA and HUD, with these minimums often being increased by participating lenders based on that financial institution’s standard. So what you read below about qualifying FICO scores is the baseline score | more...

 
Homes You Can And Cannot Buy With An FHA Mortgage

FHA Home Loans And Qualifying Income: Disability Benefits

When you apply for an FHA home loan to buy real estate, your lender will need to verify your income and employment. Some borrowers may wish to submit disability income for consideration but aren’t sure if that income will qualify. FHA loan rules address these concerns; HUD 4000.1 instructs the lender how to verify disability income, and defines how disability income may qualify. According to HUD 4000.1, the lender is required to “verify and document the Borrower’s receipt of benefits from the SSA, VA, or private disability insurance provider. The Mortgagee must obtain documentation that establishes award benefits to the Borrower. “ What Disqualifies Disability Income From Consideration For An FHA Home Loan If the borrower’s disability income has an expiration date within three years from the date of the | more...

 
FHA Home Loans And Perfect Credit: Fact Versus Fiction

FHA Home Loan Debt-To-Income Ratios

First-time home buyers looking at their FHA mortgage options hear a lot of about the debt-to-income ratio and how it affects the borrower’s ability to get a home loan approved. But do you know how the FHA lender is supposed to calculate that debt ratio? The rules governing this are found in the FHA loan handbook, HUD 4000.1. It explains to the lender that there are actually two debt ratio calculations that must be made. One is the total monthly mortgage payment compared to the total monthly income, the other is the total “fixed payment” compared to the borrower’s income. These debt ratios are complicated by the requirement that the income used to calculate the ratio must be lender-verified and certain kinds of unverifiable income will not count in the | more...

 
FHA Home Loans: A Q&A

What You Need To Know About FHA Loans And Income Verification

What do borrowers need to know about FHA home loans and income verification requirements? The short answer is that it depends on several factors including the nature of the borrower’s job. Why is this true? Why isn’t there a standard answer? Because there are a variety of different employment types and FHA loan rules must address them. Self-employed borrowers are held to a different set of requirements because verifying that income requires a different set of procedures than for “traditional” employment. Those who work in the gig economy as contractors, 1099 workers, etc. are also in a different set of circumstances than a typical 9-5 worker, so those employees need their own procedures, too. FHA Loan Income Verification Rules For more traditional employment, the lender may require pay stubs, tax | more...

 
FHA Home Loan Down Payment Assistance

Can I Use My GI Bill Housing Allowance For An FHA Home Loan?

Military borrowers who are considering an FHA home loan may wonder if they are permitted to use their Post 9/11 GI Bill housing stipend as part of their qualifying income for an FHA mortgage. FHA loan rules found in HUD 4000.1 require the lender to verify all sources of income for the borrower; verifiable income that qualifies may be counted in the borrower’s debt-to-income ratio. This process is important because if a borrower’s debts exceed a certain ratio compared to the amount of income, it may be harder for the lender to justify approving the FHA mortgage. So it makes sense that a borrower who qualifies for Post 9/11 GI Bill benefits or Forever GI Bill benefits might want to have their housing stipend included in the income they submit | more...

 
How Do Student Loans Affect My FHA Home Loan Application?

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 interchangably here, defined as | more...

 
FHA Loan Approval: Credit Check Facts

FHA Home Loan Approval And Debt Ratios

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...