FHA loans are typically a good option for many buyers because the qualifying ratios allow for more folks to qualify for a loan. They also have as little as 3% down payment requirements.

Below are examples of the two types of qualifying ratios..

 

1) Mortgage Payment Expense to Effective Income

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 31%.

See the following example:

Total amount of new house payment:
$750
 

Borrower's gross monthly income (including spouse, if married):
$2,850
 

Divide total house payment by gross monthly income:
$750/$2,850
 

Debt to income ratio:
26.32%
 

2) Total Fixed Payment to Effective Income

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 43%.

See the following example:

Total amount of new house payment:
$750
 

Total amount of monthly recurring debt:
$400
 

Total amount of monthly debt:
$1,150
 

Borrower's gross monthly income (including spouse, if married)
$2,850
 

Divide total monthly debt by gross monthly income:
$1,150/$2,850
 

Debt to income ratio:
40.35%
 

Please note that the above indicators do not exclusively determine whether or not a candidate will qualify for an FHA loan. Other factors will be considered, including credit history and job stability.