Articles in Category: Debt Ratios

September 4, 2015

FHA Loan Rules For Lenders: HUD 4000.1

We’ve been reporting on a series of rule updates, amendments, and modifications to FHA single-family home loan policy scheduled to take effect on September 14, 2015. The new FHA Single Family Housing Handbook, also known as HUD 4000.1, contains all the rules and requirements for the FHA single family home loan program. The FHA/HUD official site has a Frequently Asked Questions list that addresses questions about a variety of aspects related to HUD 4000.1. Some of those questions involve FHA policy that pertains to borrowers, some pertain strictly to the lender. For example, lenders may wonder what the FHA policy is with regard to becoming or remaining a participating FHA lender. The FAQ section addresses that specific issue with a list of guidelines that include the following under a section | more...

When Is An FHA Loan Better Than A Conventional Loan?

September 2, 2015

FHA Loan Questions: Late Payments Prior To Loan Application Time

By Joe Wallace

We get plenty of credit-related questions about FHA home loans and refinance loans in our comments section. One recent question that came in has to do with late payments on financial obligations prior to filling out an FHA mortgage application. The reader mentioned having late payments in the last year in addition to having a credit score in the mid-500s. “Can this affect my chances for FHA loan approval?” is the most common of questions, and naturally the answer is dependent on circumstances. In general, FHA loan applications are best turned in when the borrower has a solid 12 months of on-time payments for all financial obligations. Borrowers with otherwise outstanding credit and/or “compensating factors” may find a lender more forgiving if there is an issue with credit history, but | more...

August 25, 2015

Preparing For Your FHA Loan Application

By Joe Wallace

There are several factors that affect your FHA loan application. Some begin the journey to home ownership with methodical planning and research, others may become interested after seeing an ad or a home for sale that looks particularly tempting. If you’re brand new to the home loan process, here are some steps that can help you get ready to make the tough choices about your home and FHA loan options. Know Your Market Which homes in which neighborhoods have the most competitive prices? Is the housing market in your area on the rise? Is it changing due to construction or new development in areas that were under-utilized or previously blighted? What would your new neighborhood offer you in terms of services such as shopping, day care, etc.? Know Your Lenders | more...

Can I buy a manufactured home with an FHA loan?

August 19, 2015

FHA Loan Rules For “Qualifying Ratios”: Your Debt-To-Income Ratio

By Joe Wallace

We write a great deal about what it takes to qualify for an FHA loan–income verification, FICO scores, employment history, sources of down payment funds, etc. But there’s a very important part of the FHA loan application data you submit that the lender will review to insure you can actually afford your new loan. Borrowers are required to submit their income and employment data to the lender; the lender is required to do calculations based on that data to see what your debt to income ratio is–the amount of money you have coming in from verifiable sources versus the amount you have going out in monthly financial obligations. If your debt to income ratio is too high, you may have trouble qualifying for an FHA mortgage. But what is the | more...

What happens to my FHA loan in a natural disaster?

August 19, 2015

FHA Loan Rules For Debt-To-Income Ratios Versus “Total Mortgage Amount”

By Bruce Reichstein

In our previous blog post about FHA loans and debt-to-income ratios, we mentioned two calculations the lender makes to determine whether or not an FHA loan applicant can truly afford the mortgage loan. One of those calculations matches the applicant’s total “gross effective income” versus the amount of the total mortgage payment to make that determination. According to HUD 4155.1, Chapter Four, “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.” Naturally the FHA does make some exceptions for that 31% cap. “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…” and the FHA also permits a higher debt to income | more...

August 14, 2015

FHA Loan Income Rules: Government Income, Assistance Income, And Military Income

By Joe Wallace

We’ve written elsewhere about the importance of the borrower’s verifiable income when it comes time to fill out an FHA loan application and have the lender review the amount of money coming in versus how much goes out for financial obligations. A borrower’s employment income is very important, but the job you have may not be the sole source of income at application time. For some applicants there may be military income, public assistance or other types of government income for the lender to consider. What are the FHA loan rules for this type of income? Is it allowed at all? The loan rules for the income types mentioned above are found in HUD 4155.1 Chapter Four Section E. We’ll start with military income. Basic pay and allowances are not | more...

August 13, 2015

FHA Loan Rules For Income and Co-Borrowers

By Joe Wallace

When two borrowers want to apply for an FHA loan together, there are often questions about whether one borrower can make up shortcomings for the other. For example, can a borrower who earns less be offset by the borrower who earns more? As with many areas of the FHA single family home loan process, lender standards may apply, but it’s good to know the basic FHA loan requirements that apply. When it comes to income, FHA loan rules found in HUD 4155.1 at the time of this writing address the issue in Chapter Four Section D: “The lender must analyze the income of each borrower who will be obligated for the mortgage debt to determine whether the borrowers income level can be reasonably expected to continue through at least the | more...

August 12, 2015

FHA Loans, Debt-To-Income Ratios, and Cosigning

By Joe Wallace

We received an excellent reader question recently about how being a co-signer on someone else’s financial obligation might affect a borrower’s chances for an FHA mortgage loan. Does being a co-signer have any influence on how the lender views your credit? Your debt-to-income ratio? FHA loan rules published in HUD 4155.1 address these issues. Chapter Four Section C has a heading titled “Contingent Liability On Cosigned Obligations” and addresses this reader question directly. The rules begin by describing what is considered a contingent liability for the purposes of processing an FHA mortgage loan appication: “A contingent liability exists when an individual is held responsible for payment of a debt if another party, jointly or severally obligated, defaults on the payment.” Simple enough. But the FHA goes further in the next | more...

July 22, 2015

FHA Loans and Co-Borrowers

By Joe Wallace

We often get reader questions about co-borrowing, FICO scores and other factors. One recent question asked of us involves a couple who have a single income, student loan debt, and some FICO score issues. The reader wanted to know if being a co-borrower with a higher FICO score could help with loan approval in spite of the co-borrower having no income and student loans. The FHA loan rules found at the FHA official site (www.fha.gov) state the following about co-borrower income: “The lender must analyze the income of each borrower who will be obligated for the mortgage debt to determine whether the borrowers income level can be reasonably expected to continue through at least the first three years of the mortgage loan.” That alone implies that all borrowers to be | more...

May 18, 2015

FHA Loan Debt To Income Ratio Rules: A Reader Question

By Joe Wallace

A reader asks, “I am trying to purchase a house. My loans arent scheduled to begin repayment until Nov, of 2016, well over 12 months from now. I am currently enrolled. If you factor in what my loan payment will be, I am at a 46% debt/income ratio, if not, I am under the 41% line. My question is: Will my student loans count toward the debt/income ratio, even though I dont have to start paying them for another 18 months or so?” FHA loan rules in HUD 4155.1 Chapter Four, Section C addresses the student loan debt topic, as follows; “Debt payments such as a student loan or balloon note scheduled to begin or come due within 12 months of the mortgage loan closing must be included by the | more...