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FHA HOME LOANS AND DEBT TO INCOME RATIO

FHA HOME LOANS AND DEBT TO INCOME RATIO

There are several factors that go into an FHA Home Loan approval. One important part of the borrower profile is the Debt to Income ratio, or DTI. With FHA and conventional mortgages the debt to income ratio will certainly be calculated. In short, it is the percentage of a borrower’s gross monthly income (before taxes) that goes toward paying recurring debts. Debts are not defined as bills like utility bills, cable bills, or even health insurance, but rather are recurring loans. Examples are student loans, mortgage payments, car loans, alimony, child support, personal loans, and monthly minimum payments on credit cards.

The lower the number that you have the better, but the goal is to have a DTI (debt to income) ratio of less than 50% for an FHA home loan approval.

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Here is an example

Annual salary – $40,000 = Gross monthly income of $3,333.

Debts / monthly payments = $212 car payment, $63 personal loan, $60 furniture store, $837 NEW FHA home loan payment (this is the amount of the loan you are applying for!) = $1172 monthly debts.

Debt to income (DTI) ratio = $1,172 / $3,333 = 35%