Frequently Asked Question About Mortgages: FHA Loan Qualification
Q: I read somewhere that, to qualify for FHA loan, your mortgage payment should be 30% of your gross income. I got confused. If my income is $3K per month, then 30% of my income will be $900.
But if I want to buy a house, whose mortgage payment is $650 per month, will I qualify for an FHA loan?
A: With FHA and as with any mortgage, the debt-to-income ratios are the maximum for the loan product that they pertain to. There are front-end debt ratios, and back-end debt ratios. The front end debt ratio pertains to the maximum monthly housing payment, and the back-end debt ratio pertains to your total monthly debt obligations.
For FHA, you're permitted UP TO 31% of your gross monthly income for housing (principal and interest, 1/12 of your property taxes, 1/12 of your annual homeowner's insurance premium, and the monthly mortgage insurance premium - if any). So, with a $3000/mo income, your maximum monthly housing payment is $930 (31% of $3000). You CAN pay LESS. So, in this case, yes, you will qualify for an FHA mortgage, assuming of course, you meet the credit requirements.
If you have any monthly debt obligations, that must be taken into consideration for determining your total monthly debt obligations. For FHA, the maximum monthly debt payments can not exceed 43% of your gross monthly income, or in this case, $1290. So, the more debt you have, the less house you can buy. And, the less debt you have, the more house you can buy.
With FHA, your back-end debt ratio can be as high as 45% of your gross monthly income provided you have compensating factors such as a sizeable down payment, significant cash reserves, and/or high credit scores.
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