Friday, June 17, 2011

FHA Loans - Income Qualifications

FHA Loans - Income Qualifications


FHA has designed its program to assist people to purchase homes and refinance existing mortgages. Therefore the income qualifying guidelines are more flexible than traditional Fannie Mae & Freddie Mac Conventional Home Loans.

One of the first questions we will ask will consider is how much of your total income you will spend on housing. This information helps the lender decide whether you can comfortably afford a home.

When you are qualifying for a loan, a we will use your gross income. That means all the money you earn before taxes, including overtime, commissions, dividends and any other sources --as long as you can show a steady two year history for these sources.

Your monthly housing expense as a percentage of your monthly income is called the housing expense (a.k.a.: front-end) ratio. FHA suggests to spend about 29% of your income on your house payment (including the mortgage, property taxes, mortgage insurance and hazard insurance).

Calculate what your new monthly mortgage payment should be by using the formula:

Gross Monthly Income multiplied by 29% = Mortgage Payment.

Sometimes you have to stretch that percentage when you buy a house -- and that's one of the benefits of easier qualifying FHA home loans. To qualify, you're allowed to spend up to 35% of your income on your house payment, as long as everything else in your application shows that you can handle the "stretch."

One important thing FHA will do is compare your housing expense now to the expense you'll have if you buy a home. The smaller the increase, the stronger your application looks.

Learn what FHA will allow and look for on you credit by clicking

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