What is a Good Debt-to-Income Ratio for an FHA Loan? The maximum DTI ratio allowed for an FHA loan varies by lender and is typically between 43% to 50%. At Better Mortgage, there are circumstances where up to 57% is allowed.
There are no minimum or maximum income requirements for FHA home loans. Rules do not say that it's possible to earn too much to qualify for an FHA loan.
FHA debt-to-income (DTI) ratio
To meet the DTI ratio requirements for an FHA loan, your combined monthly debt payments, including your mortgage, shouldn't exceed 43 percent. No more than 31 percent of your income should go toward your mortgage payments.
To qualify for an FHA loan, borrowers need a minimum credit score of 500, steady employment and income for at least two years, and U.S. residency or eligible non-resident status. A debt-to-income (DTI) ratio below 43% is recommended, but exceptions are possible if you're a strong applicants.
Lenders generally prefer to see a DTI ratio of 43% or less. However, some may consider higher ratios, up to 55% on a case-by-case basis - more about DTI limits later.
You may be denied for an FHA loan if you have declared bankruptcy but you have not had the bankruptcy discharged. You may be denied if you are delinquent on federal taxes or otherwise owe money to the federal government but without an approved payment plan.
If you're currently in the market looking to buy a triplex or fourplex with FHA financing, you need to see if the property's rents pass the Self-Sufficiency Test. To be “self-sufficient” means that 75% of the property's rents need to cover the monthly payments.
Credit score requirements
Most first-time home buyer programs require a minimum credit score, often around 620, to qualify for conventional loans. However, some programs, like FHA loans, are more lenient, allowing scores as low as 580 or even lower with higher down payments.
FHA Loan: Cons
Here are some FHA home loan disadvantages: An extra cost – an upfront mortgage insurance premium (MIP) of 2.25% of the loan's value. The MIP must either be paid in cash when you get the loan or rolled into the life of the loan. Home price qualifying maximums are set by FHA.
While HUD 4000.1 does have standards for debt-to-income ratios and requires the lender to verify a borrower's employment and income, HUD 4000.1 does not specify a maximum income cap. FHA loans are for any qualified borrower who intends to purchase and occupy the home.
The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.
35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.
You'll usually need a credit score of at least 640 for the zero-down USDA loan program. VA loans with no money down usually require a minimum credit score of 580 to 620. Low-down-payment mortgages, including conforming loans and FHA loans, also require FICO scores of 580 to 620.
"An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations." This can mean you owned a mobile home or another residence that didn't have a permanent foundation.
Exceptions to the Rule: When You Can Have Multiple FHA Loans
The FHA recognizes that life circumstances can necessitate having more than one FHA loan. To be eligible for a second FHA loan, you must have at least 25% equity in your home or have paid down the FHA loan balance to 75% in certain circumstances.
FHA First Mortgage
Borrower must have owned property for 12 months AND if encumbered by a mortgage made payments for the last 12 months within the month due. Otherwise limited to 85% LTV. Standard 31/43 ratios, may be exceeded with compensating factor(s).
Your eligibility for an FHA loan doesn't hinge on a particular income amount, but you must prove you have a steady employment history. Your income must be verifiable by sharing pay stubs, W-2s, federal tax returns and bank statements with your lender. Your lender may ask for other examples of verification as well.
Common issues that may cause a property to fail an FHA appraisal include: Significant structural problems. Peeling paint. Safety hazards like exposed wiring or lack of smoke detectors.