With an automated approval, FHA allows a house payment up to 46.9% of gross income and total debts up to 56.9%. No other major program sets a higher fixed limit, which is why Florida buyers carrying car payments, student loans or card balances so often close on FHA. A manually underwritten FHA loan starts lower, and compensating factors raise it.
The two ratios FHA checks
Debt-to-income ratio (DTI) compares monthly payments to gross monthly income, which is pay before taxes and deductions. FHA looks at it two ways.
The housing ratio, or front-end ratio, is the new house payment alone divided by gross income. The house payment includes principal, interest, property tax, homeowners insurance, FHA mortgage insurance and any HOA dues.
The total ratio, or back-end ratio, adds every monthly debt on your credit report: car loans, minimum card payments, student loans (even at a $0 payment), personal loans, child support and co-signed loans. Rent, utilities, phone bills and insurance premiums don't count.
FHA's automated system, the TOTAL Scorecard, reads your application and returns an approval. We get FHA approvals through it at up to 46.9% housing and 56.9% total, and QualRate's calculators use those figures.
Manual underwriting limits
When the automated system doesn't approve the loan, an underwriter can approve it by hand under HUD's ratio table.
| Credit score | Housing / total ratio | What it takes |
|---|---|---|
| 500 to 579, or no score | 31% / 43% | Compensating factors don't raise it |
| 580 and up | 31% / 43% | Nothing extra |
| 580 and up | 37% / 47% | One compensating factor |
| 580 and up | 40% / 40% | No discretionary debt |
| 580 and up | 40% / 50% | Two compensating factors |
For 37/47, the one factor can be reserves of at least three monthly house payments left after closing on a 1 or 2 unit home, a new payment no more than $100 or 5% above what you pay for housing now (whichever is less), or residual income at VA's levels. For 40/50, any two of those count, and so does overtime, bonus or part-time income with at least a year of history that wasn't used to qualify. No discretionary debt means the house payment would be your only account carrying a balance month to month, with credit lines at least six months old that you pay in full each month.
A worked example on $5,000 a month
Avery earns $5,000 a month gross and has $600 a month in debts. The prices use FHA 100% financing at a 5.75% rate on a 30-year fixed, property tax at 0.95% of the price a year and $283 a month for insurance.
| Approval type | Housing limit | Total limit minus $600 | Most house payment | Highest price |
|---|---|---|---|---|
| Automated (46.9 / 56.9) | $2,345 | $2,245 | $2,245 | $281,000 |
| Manual, no factors (31 / 43) | $1,550 | $1,550 | $1,550 | $181,000 |
| Manual, one factor (37 / 47) | $1,850 | $1,750 | $1,750 | $210,000 |
| Manual, two factors (40 / 50) | $2,000 | $1,900 | $1,900 | $232,000 |
Each row takes the lower of the two limits. With an automated approval, 46.9% of $5,000 is $2,345, and 56.9% of $5,000 is $2,845, minus $600 in debts, which leaves $2,245. The lower figure, $2,245, is Avery's most house payment, and it supports about $281,000.
Look at the spread between the first two rows. The same income and debts reach $100,000 more house on an automated approval than on a manual approval with no compensating factors, so getting the automated approval is worth real effort.
If your ratio runs higher
Pay off a debt to zero. Each $100 a month removed adds roughly $14,000 of FHA buying power at a 5.75% rate when total debt is the limit.
Add a co-signer. FHA lets a non-occupant co-borrower, usually a parent or grandparent, add their income. They don't go on the title, and Social Security or SSI counts, grossed up 15% because it isn't taxed.
Count all your income. Overtime, bonuses and a second job can count with a history, and so can a spouse who'll be on the loan.
Keep the assistance second payment-free. With FHA 100% financing, a deferred down payment assistance second adds nothing to your housing ratio.
For FHA side by side with VA, USDA and Conventional, read the debt-to-income ratio guide. The DTI calculator shows both FHA ratios at any price you type in. When you want FHA's automated system run on your actual income and debts, call AAA Capital Funding at 888-601-8344.