The Basic Factors For Qualifying For An FHA Loan

1. Income - The amount of income used to qualify for an FHA loan is expressed as a ratio starting at 29/41. 29 is the front end of the ratio which means you can use 29% of your gross monthly income as the amount of money you are allowed to spend on your housing payment (mortgage, taxes, and insurance). 41 is the called the back end ratio which is the amount allowed for your all of your debts combined, your housing payment plus any credit cards, auto, student loans etc.

Examples:

If you and your spouse together gross 6000 per month you multiply 6000 x .29 which equals 1740. 1740 is the amount you are allowed to spend on your mortgage payment, taxes and insurance combined. Example: If your taxes and insurance combined were 340 per month you would have 1400 left for the principal and interest on your mortgage payment.

You then multiply 6000 by your back end ratio of 41 %. 6000 x .41 equals 2460. 2460 is the total amount of debt you are allowed per month. 1740 of housing expenses plus another 720 of auto loans, leases, credit cards etc. for a total of 2460.

If for example when you apply you have monthly payments of 1000 on all of your credit cards, auto loans etc, It would lower the amount you could spend on housing to 1460. Your total debt cannot exceed the second back end ratio or it will cut into you housing payment.

29/41 is a standard FHA ratio used to qualify, the actual number may be as high as 40/45 depending on a number of factors:

Your Credit Score

Length and Stability Of Employment

Cash Reserves

These are known as compensating factors and they can raise your total ratio so that with the same gross income you can afford more house. You have to apply and have an underwriter look at your loan package to see where you fall and what your particular qualifying ratio will ultimately be depending on your individual situation.

2. Down payment of 3%- Thanks to the flexibility of FHA this can be gifted. To read more about gifted down payments click here.

3. Loan Amount must fall within FHA loan limits.