December 6, 2011
In recent blog posts we’ve been examining the FHA loan debt-to-income ratio rules. The FHA requires borrowers to have a combined monthly debt load and projected FHA home loan obligation that does not exceed 41% of the borrower’s income.
As stated in previous blog posts, FHA guidelines require the lender to examine the borrower’s monthly debts and compare to his or her monthly income. The total amount of debt including credit card payments, auto loan payments, student loans, and other payments, is added together, then combined with the total amount due each month for the FHA home loan.
That figure does not just include the mortgage payment itself–it also includes any home owner association dues, amounts which must be deposited in escrow for property taxes and insurance, etc.
When the two totals are added together and divided by the borrower’s gross income, the lender arrives at the debt to income ratio percentage. But there are things which FHA rules say do not count as debts even if they are financial obligations, and should not be included in the debt-to-income ratio calculation.
According to the FHA, the following list of financial obligations should not be used to calculate the debt to income ratio:
Federal, state, and local taxes
Federal Insurance Contributions Act (FICA)
Other retirement contributions, such as 401(k) accounts (including repayment of debt secured by these funds)
Commuting costs
Union dues
Open accounts with zero balances
Automatic deductions to savings accounts
Child care
Voluntary deductions.
The items on this list are common costs many borrowers should examine before trying to calculate their own debt to income ratios when planning for an FHA insured mortgage loan application.
Eliminating these from your calculations could tell you a lot not only about how much debt you have in the eyes of the lender for an FHA loan, but also how much these obligations will affect your financial bottom line in addition to what you’ll pay for the mortgage.
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.
Browse by Date: