What are the maximum debt to income qualifying ratio requirements for FHA loans?

SELF EMPLOYED MORTGAGE LENDERS QUESTIONS AND ANSWERSCategory: FHA QuestionsWhat are the maximum debt to income qualifying ratio requirements for FHA loans?
Thomas Martin Staff asked 5 years ago
What are the maximum debt to income qualifying ratio requirements for FHA loans?

Maximum qualifying ratios for FHA mortgage approval underwritten loans are determined according to the lowest minimum FHA mortgage qualifying credit score and compensating factors.

Lowest Minimum FHA mortgage qualifying credit score 500-579 or No Credit Score:
31/43 (Energy Efficient Homes may have stretch ratios of 33/45)

Lowest Minimum FHA mortgage qualifying credit score 580 and above:
1. 31/43 (Energy Efficient Homes may have stretch ratios of 33/45

2. 37/47  – Requires 1 of the following Compensating Factors:
• Verified/documented cash reserves equal to or exceeding 3 (1-2 units) or 6 (3-4 units) total monthly FHA mortgage payments.
• Minimal Increase in Housing Payment

– New total monthly FHA mortgage payment doesn’t exceed current total monthly housing payment by more than $100 or 5% (whichever is less); and
– There is a documented 12-month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the FHA mortgage being refinanced were made within the month due for the previous 12 months.
– May not be used as a compensating factor if the borrower has no current housing payment.

• Residual income

3. 40/40 – No Discretionary Debt:
• The borrower’s housing payment is the only open account with an outstanding balance not paid off monthly; and
• The credit report shows established credit lines in the borrower’s name open for at least 6 months; and
• The borrower can document these accounts have been paid off in full monthly for at least the past 6 months.

4. 40/50 – Requires 2 of the following Compensating Factors:
• Verified/documented cash reserves equal to or exceeding 3 (1-2 units) or 6 (3-4 units) total monthly FHA mortgage payments.
• Minimal Increase in Housing Payment

– New total monthly FHA mortgage payment doesn’t exceed current total monthly housing payment by more than $100 or 5% (whichever is less); and
– There is a documented 12 month rental or FHA mortgage payment history with no more than one 30 day late payment. In cash-out transactions all payments on the FHA mortgage being refinanced were made within the month due for the previous 12 months.
– May not be used as a compensating factor if the borrower has no current housing payment.

• Significant Additional Income (Overtime, Bonuses, Part-Time or Seasonal Employment) Not Reflected in Effective Income

– Received for at least 1 year, and will likely continue; and
– If it were included in gross effective income, is sufficient to reduce the qualifying ratios to not more than 37/47.

• Residual income

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