June 13, 2014
When you apply for an FHA home loan, one thing the lender must do is determine whether your income and monthly debts are such that you can afford the additional financial burden of the monthly mortgage payment. When these calculations are made, the “qualifying ratio” is a very important factor in loan approval.
The rules for qualifying rations are found in HUD 4155.1 and there are two basic calculations to be made. One of them involves the borrower’s income versus his or her projected mortgage obligation.
HUD 4155.1 says, “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.”
There can be exceptions as provided by the rules in HUD 4155.1. “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. For those borrowers who qualify under FHA’s Energy Efficient Homes (EEH), the ratio is set at 33%.”
The total mortgage payment is not limited to just principal and interest. “The total mortgage payment includes
principal and interest
escrow deposits for real estate taxes
hazard insurance
mortgage insurance premium
homeowners’ association dues
ground rent
special assessments, and
payments for any acceptable secondary financing.”
That’s very important to keep in mind when you’re in the planning and saving stages of an FHA home loan. Don’t forget that there is another calculation to be made, as discussed in HUD 4155.1 under the debt to income ratio section. “The relationship of total obligations to income is considered acceptable if the total mortgage payment and all recurring monthly obligations do not exceed
43% of the gross effective income.”
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.
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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