If you are a new borrower looking to purchase a home there are many guidelines that you will need to adhere to such as credit score and debt to income or DTI ratio. Since we have already discussed FHA Credit Scores, the next logical step is to get into FHA Debt To Income Ratio. If you aren’t sure what a debt to income ratio is, let me go over this with you. In essence the FHA Debt To Income Ratio is exactly what the words say it is, it is the ratio of your monthly debts against your monthly income. First, your monthly debts are those debts held by creditors that show on your credit report or are otherwise monthly debts to be paid. This does not include household expenses like utilities, gas, groceries, etc.
Here are some examples:
Aside from this, it is also wise that you should know that income pertains to gross monthly income or your income before taxes are applied if you are a W2 wage earner.
If we decide that going down the path of an FHA Loan is your preferred method then working with Fairway Independent Mortgage Corporation NMLS# 2289 is a solid decision since in 2017 we were the #3 lender in the country in terms of FHA Purchase Loan volume as reported by HUD. Knowing the different FHA Debt To Income Ratio associated with your particular qualifications is key in your understanding of how much of a mortgage you can afford. What needs to be understood is that FHA has guidelines in place that determines DTI ratio with regards to FICO credit score.
As you can see by having a better FICO credit score it can be a big help with regards to FHA Debt To Income Ratio and that extra 13.9% by having a 620+ FICO can go a long way to affording your desired home. Let’s look into a sample scenario below with an assumption being the borrower has monthly Gross Income of $5,000.
Sub-620 FICO score
– $5,000 * 43% = $2,150 maximum debt allowance
– $2,150 – $950 = $1,200 maximum mortgage payment allowance (including Principal, interest, property taxes, insurance, and HOA fee)
620+ FICO score
– $5,000 * 56.9% = $2,845 maximum debt allowance
– $2,845 – $950 = $1,895 maximum mortgage payment allowance (including Principal, interest, property taxes, insurance, and HOA fee)
In this example, by having a higher credit score, the FHA Debt To Income Ratio allows for this borrower to afford a mortgage payment that is $695 higher than the lower 43% tier.
I, Nick Ferrante NMLS# 1110570, guarantee that I will go over all your different options with you. If you aren’t in a rush to purchase a home we can take the extra time to try and increase your FICO credit score as it can pay big dividends to your buying power. No matter which FHA Debt To Income Ratio you fall into, I will give you the maximum amount of housing expense you can afford per the guidelines and help in getting you into the house of your dreams. I work with borrowers of all credit scores so if you are worried about your credit, please don’t be as I am here to help you or work with you until you are ready to purchase a home. I have worked with borrowers that have had credit scores in the low 500’s and we have worked together on forming a customized plan to get these borrowers into homes. I had an individual who came to me with a 513 credit score and over the course of 4 months we paid down specific debts, removed inaccurate items from their credit report, and got their credit score to 627 where we easily got them into an FHA Loan that they now qualified for. If you are ready to get started please fill out my application here.