FHA DTI Ratio

FHA DTI Ratio

FHA DTI Ratio

Debt to income ratios are the calculations underwriters use to determine whether a borrower can qualify for a mortgage. They are used to determine if you have the capacity to repay your mortgage.

There are two calculations.

• The first or Front Ratio is your housing expense-to-income ratio. This is your proposed mortgage payment (principle, interest, taxes, mortgage insurance, and home owners insurance) divided by your gross monthly income.
• The second or Back Ratio is your total monthly obligations-to-income ratio. This is your gross monthly payment including Mortgage PITI divided by your gross monthly income.

FHA loan requirements include a maximum debt to income ratio. When a borrower applies for an FHA mortgage, they are required to disclose all debts, open lines of credit, and all possible approved sources of regular income. Using this data, the bank and the FHA calculate the borrower's debt-to-income ratio.

FHA guidelines maximum debt to income ratio is 55% with compensating factors. Most lenders will limit maximum debt-to-income to under 50% and some lenders to 45%.

Minimum Credit Score

FHA allows a borrower with a credit score of 580 to buy a home with only a 3.5% down payment. FHA guidelines allows a borrower with a minimum credit score of 580 to buy a home using their own funds for a down payment or the down payment funds can be a gift from a family member.

FHA guidelines allows a home buyer with a minimum credit score above 580 up to a 6% seller concessions. The seller concessions must be written into the sales contract.

FHA requires a minimum credit score of 500 for all loans.

Home buyers with a credit score below 580 are required to make a 10% down payment. The down payment funds can belong to the borrower or can be a gift from a family member. Up to 6% seller concessions are allowed. 

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