February 4, 2011
FHA loans are based on a range of qualifying criteria for borrowers. The borrower must have satisfactory credit, show a history of on-time payments, reliable income and a debt-to-income ratio that qualifies.
But the FHA also prides itself on flexibility with its loans and sometimes a debt-to-income ratio or other factor that doesn’t quite make the grade can be offset by what the FHA calls “compensating factors”.
This means that some borrowers who might not meet the technical standards for the FHA mortgage loan could be allowed to get the loan they want if those compensating factors are present. These factors don’t apply to all borrowers across the board–such issues are handled case-by-case.
We’re sharing them with you here for one important reason; it’s never good to simply assume you can’t qualify for an FHA loan. Some borrowers may give up on a home loan prematurely simply because they didn’t know about the FHA compensating factors that could apply in their case.
These are never guaranteed as they depend on the lender’s discretion, but in the right circumstances could make the difference between getting a loan or not.
What are these compensating factors?
That’s an issue we’ll cover more in-depth in another post, but some of them are fairly basic. A borrower applying for an FHA home loan with substantial savings, a potential for increased earnings (compared to what the FHA loan applicant currently reports as their verifiable income) and/or the ability to make a larger-than-usual down payment are all factors that can change the game, so to speak, when it comes to FHA loan approval in cases where one or more qualifying factors are considered marginal or on the wrong side of the requirements.
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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