![]() One or more may be sufficient for FHA qualification purposes. Note: Mortgage applicants don't necessarily have to meet all of these compensating factors. Reference: HUD Handbook 4000.1, Single Family Housing Policy Handbook If a borrower will have sufficient residual income after all monthly bills are paid (including the mortgage), he or she might be able to exceed the standard debt-to-income ratio limits shown above. ![]() Residual income: The term "residual income" refers to money that's left over each month after all of your major expenses are paid (including housing, taxes, and debt payments).Minimal increase: If the home loan being assumed will only result in a minimal increase in the borrower's monthly housing expense, he or she may still qualify for an FHA loan with a higher-than-average debt burden. ![]() The exact requirement can vary depending on the loan parameters. In this context, "substantial" typically means that the borrower has at least one to three months worth of mortgage payments in the bank after closing. Cash reserves: Mortgage lenders can sometimes make DTI exceptions for borrowers who have substantial cash reserves in the bank.HUD gives mortgage lenders some leeway to approve borrowers with DTI ratios higher than the above-stated limits, as long as the lender can find and document "significant compensating factors."Ī partial list of compensating factors is presented below. Image: Compensating factors for debt ratios in manual underwriting. There are exceptions to the official debt-to-income caps. On the surface, this suggests that borrowers with DTI numbers above the stated limits could have a harder time qualifying for FHA loans. Compensating Factors for Borrowers with High Debt If they do update their debt ratio guidelines in 2022, we will update this page to reflect those changes. We expect these requirements to remain in place throughout the year, since HUD has not announced any changes to them. Those are the current FHA DTI ratio limits for 2021. HUD is the government entity that establishes all of the rules and requirements for the FHA loan program, including the DTI limits.Īccording to HUD: "Qualifying ratios are used to determine if the borrower can reasonably be expected to meet the expenses involved in home ownership, and provide for his/her family." 2021 DTI Limits for FHA Loans: 31% / 43%Īccording to official FHA guidelines, borrowers are generally limited to having debt ratios of 31% on the front end, and 43% on the back end.īut the back-end ratio can be as high as 50% for certain borrowers, particularly those with good credit and other "compensating factors." See the table below for a breakdown of debt-to-income, credit scores, and compensating factors. The Department of Housing and Urban Development (HUD) has specific guidelines for FHA debt-to-income ratios. For example, if my recurring monthly debts total $2,000, and my gross monthly income is $6,000, I have a DTI ratio of 33% (2,000 ÷ 6,000 = 0.33, or 33%). You can calculate your DTI ratio by dividing your total monthly debts by your gross (pre-tax) monthly income. ![]() This can include the mortgage payment, credit cards, car loans, etc.
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