Articles in Category: Debt Ratios

February 18, 2025

FHA Home Loan Approval Versus Your Debts

In 2025 a successful FHA home loan application means taking some extra time in the planning stages to work on your financials including your credit scores and the amount of debt you carry. Some borrowers don’t view those two issues as being equal…at first. FHA Loan Approval Factors You Should Know Your FICO score range is an important part of the data your lender uses to justify approving your mortgage. But it isn’t the only benchmark. Did you know that to be approved for an FHA mortgage, try to come to the loan application process with a debt ratio of 43% or less? That means your monthly outgoing debt takes up no more than 43% of your monthly income. Managing Your Debt Ratio: How To Get Started The Consumer Financial | more...

August 5, 2024

The Myth Of The No Money Down FHA Loan

By Joe Wallace

Many readers want to know if there are any “fair credit” and “no money down” loans for FHA borrowers. While such options may exist in loan programs offered by other agencies, the FHA Single Family Home Loan program does not have a “zero down” option or a “fair credit” home loan. FHA mortgage loans for new purchases require a minimum of 3.5% down, which must come from approved sources that have to be verified by the lender. Some borrowers may be confused by the Department of Veterans Affairs and its VA home loan program. VA Zero-Down Mortgages VA loans feature a no-money-down option, but these loans are only available to qualified borrowers who have served a minimum time in the armed services. FHA loans don’t have this option. Both programs | more...

June 6, 2024

Home Loan Choices

By Bruce Reichstein

Every part of the home loan process has a set of choices to make. For most house hunters this process begins with the decision to own your own home and quit renting. What other choices await you on the road to homeownership? Interest Rate Options: Conventional, FHA, Fixed, Adjustable No matter which type of home loan you choose, VA, FHA, USDA, or conventional, you’ll need to decide whether to apply for a fixed or adjustable mortgage. The fixed-rate loan is good for those who need a predictable house payment for the full duration of the mortgage. Unless you refinance, the rate will not change. An adjustable-rate mortgage has an introductory period (typically at a lower rate) followed by periods of rate adjustments. FHA adjustable-rate mortgages may, for some borrowers, be | more...

November 30, 2023

Avoiding Foreclosure in 2024

By Bruce Reichstein

Do you want to buy or build a home with an FHA loan? When planning and saving, consider what happens after closing day once you accept the keys, schedule the movers, and take possession of your new house. What’s the big issue to remember here? Future borrowers in the budgeting and planning stages must choose how much cash to pay at closing time. And so far out from that first mortgage payment it may feel tempting to save a bit on your out-of-pocket expenses and finance certain closing costs like the FHA loan upfront mortgage premium. There is an issue called “cost creep” that some borrowers may experience. Financing one closing cost might not hurt your bottom line too much. And from there some justify adding even more to the | more...

November 21, 2023

Before You Apply For Your Home Loan

By Joe Wallace

First-time homebuyers are often encouraged to start planning and saving for an FHA loan at least 12 months ahead. And it’s good advice. Within those 12 months, you’ll want to concentrate on a few important areas. There are moves to make and moves to avoid in the 12 months before your home loan application. 12 months is just a baseline. Some prefer to take 18 months or longer to prepare for a mortgage application. Take as much time as you need for best results. Don’t Make Big Career Changes Too Close To Application Time For the purposes of this article, pay raises, promotions, or other upwardly mobile moves within the company you currently work for are not the issue. Switching to a freelance career, transitioning from full-time to contract work, or | more...

October 13, 2023

FHA Home Loan Approval And Your Income

By Joe Wallace

Some important financial issues can derail your FHA home loan application. They include missed housing payments, FICO scores that don’t meet lender standards, or a lack of time in the job market. These are all factors that can lead to a “no” from a lender. But there’s a “new” wrinkle. Insufficient income–not a new problem, obviously, as many aspire to buy a home but can’t afford it yet. But it is a trending issue in ways that make some financial pundits sit up and take notice. According to CNBC, insufficient income is a problem is a major reason why some loan applications get rejected in 2023. Rates And Mortgage Payments Higher In 2023 Home loan interest rates were flirting with the 8% range at the time of this writing, and higher rates | more...

July 7, 2023

Signs You Are Not Ready To Apply For A Home Loan

By Joe Wallace

How does a first-time buyer know they are ready to apply for a home loan? There are some instances where a first-time borrower is definitely NOT ready, do you know what they are? You Don’t Know Your FICO Scores If you don’t know what your FICO scores are, you aren’t truly prepared to apply for a home loan. You need to know what the lender will know when she reviews your credit report. If you apply without knowing your scores, you risk wasting time and money. You Haven’t Reviewed Your Credit Report In The Last Months Leading Up To Your Credit Application If you don’t know what your loan officer will see when your credit report is pulled, you aren’t ready to apply for a loan. Evidence of identity theft, | more...

June 22, 2023

FHA Loan Rules For Income: Investments, Trusts, and Promissory Note Payments

By Joe Wallace

Part of the FHA loan approval process involves the lender verifying an applicant’s income. FHA rules state that for purposes of calculating a borrower’s debt-to-income ratio, only verifiable income can be counted in that ratio. Do FHA rules allow a borrower’s interest or dividend payments from investments to be counted as verifiable income? For some borrowers, this can be an important question. According to the FHA Lender’s Handbook, “The Mortgagee must verify and document the Borrower’s Investment Income by obtaining tax returns for the previous two years and the most recent account statement.” Additional instructions to the lender for this issue include the requirement that when making the calculation. “The Mortgagee must subtract any of the assets used for the Borrower’s required funds to close to purchase the subject Property | more...

May 22, 2023

Does Income Affect FHA Loan Approval

By Joe Wallace

The short answer to the question, “Does your income matter” regarding FHA loan approval? Yes, it does. But not the way some borrowers might think. Do you know the issues important to your loan officer when considering an FHA loan application? Income is an essential part of the equation based on the age, dependability, and nature of your earnings. Your income matters if you want to buy or build a home with an FHA mortgage. But there are some misconceptions about home loan approval regarding income. Do you know the difference between the facts and the fiction about home loan income requirements? FHA Home Loans: No Minimum Income FHA loan rules do not specify a minimum earning amount per day, week, month, or year. To be approved for an FHA | more...

October 19, 2022

FHA Home Loan Approval And Debt Ratios

By Joe Wallace

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...