November 21st, 2016 3:03 PM by Robin Bain
FHA Debt-to-Income (DTI) Ratio
When you submit an
application for an FHA-insured home loan, the mortgage lender will evaluate
your debt-to-income ratio to see if you're qualified for a loan. If you have
too much debt in relation to your monthly income, you might have trouble
qualifying. On the other hand, if you have a manageable level of debt (as
defined below), you have one less thing to worry about.
The current (2015)
limits for FHA debt-to-income ratios are 31% for housing-related debt, and 43%
for total debt. But there are exceptions to these general rules. So don't be
discouraged if you're slightly above those numbers.
Here's an overview
of FHA debt ratio requirements for 2015 - 2016:
Definition of a Debt-to-Income Ratio
ratio (DTI) is a percentage that shows how much of a person's income is used to
cover his or her recurring debts. Lenders calculate DTI at the monthly level
using the borrower's gross, or pre-tax, income.
There are actually
two numbers used for FHA qualification:
The math is fairly
simply. You can calculate your DTI ratio by dividing your total monthly debts
by your gross (pre-tax) monthly income. 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%).
The Department of
Housing and Urban Development (HUD) has specific guidelines for FHA
debt-to-income ratios. HUD is the government entity that establishes all of the
rules and requirements for the FHA loan program, including the DTI limits.
According 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
2015 DTI Limits for FHA Loans: 31% / 43%
official FHA guidelines, borrowers are limited to having debt ratios of 31% on
the front end, and 43% on the back end. Here are the relevant excerpts from the
differently, the borrower's housing-related expenses should add up to no more
than 31% of his or her gross monthly income. And the borrower's total
debt load (including the monthly mortgage payments, credit cards, car payments,
etc.) should not exceed 43% of his or her gross monthly income.
Those are the
current FHA DTI ratio limits for 2015. We expect these requirements to remain
in place for 2016, since HUD has not announced any changes to them. If they do
update their debt ratio guidelines in 2016, we will update this page to reflect
Compensating Factors for Borrowers with
On the surface,
this suggests that borrowers with DTI numbers above the stated limits could
have a harder time qualifying for FHA loans. But that's not always the case.
There are exceptions to the official debt-to-income caps.
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."
A partial list of
compensating factors is presented below.
Reference: HUD Handbook
4155.1, Chapter 4, Section F
applicants don't necessarily have to meet all of these compensating factors.
One or more may be sufficient for FHA qualification purposes.
To learn more
about FHA debt-to-income ratios in 2015, and the compensating factors that
could allow you to circumvent them, refer to Chapter 4 of HUD Handbook 4155.1.
To recap, FHA's
maximum qualifying debt ratios for borrowers in 2015 are 31% and 43%. This
means the monthly housing payments should not exceed 31% of gross monthly
income, while the total debt burden should not exceed 43% of monthly income.
But there are exceptions to these rules, as noted above.
Disclaimer: HUD makes changes
to their FHA requirements from time to time. While we make every effort to keep
this website up to date, there is a chance the information presented above will
become inaccurate over time. This website is not meant to replace the official
guidelines found on the HUD website, but only to explain their policies in
plain English. For the most current and accurate information available, refer to
Read more: http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf