FHA Home Loans are great for folks who are looking for a home in Cary, NC or Raleigh – especially those who might be first time home buyers, or don’t have a ton a cash in the bank for a down payment. It’s also great for Single Parents, or folks who had some financial hardships in the past.
FHA Mortgages have two levels of the “Approval Process.”
The first level is pretty simple for folks with a middle credit score of 640. For those with lower scores, and those with debt to income ratios above 43%, you will be required to meet the “FHA Manual Underwriting” (read more restrictive) guidelines. Those “Manual Underwrite” FHA Home Loan Eligibility requirements include a more “difficult” set of qualifying ratios.
FHA Compensating Factors for High Ratios
If you can produce two of these compensating factors then you have a shot at overcoming a debt to income ratio that is in the high range for FHA Mortgage Manual Underwrite.
Here is the list of FHA Loan Compensating Factors…
|Housing Expense Payments||Ability to pay housing expenses equal to proposed monthly over the past 12-24 months|
|Down Payment||Ability to make down payment of 10% toward the purchase|
|Accumulated Savings||Ability to accumulate savings, and conservative in using credit|
|Previous Credit History||Ability to devote a greater portion of income to housing expenses.|
|Compensation or Income Not Reflected in Effective Income||Income that is not reflected but directly affects his/her ability to pay the mortgage. i.e. food stamps and similar public benefits.|
|Minimal Housing Expense Increase||Only a minimal increase in the borrower’s housing expense.|
|Substantial Cash Reserves||Cash reserves at least three months worth after closing. Not equity in other properties, and proceeds from a cash-out refinance.|
|Substantial Non-Taxable Income||The borrower has substantial non-taxable income.|
|Potential for Increased Earnings||Potential for increased earnings, indicated by training or education in profession.|
|Part Time Income Not Used To Qualify||Potential for additional household income from 12 months or more in a part time job.|
|Primary Wage-Earner Relocation||The primary wage-earner is relocating, and the secondary wage-earner has an established employment history, is expected to return to work, and has prospects for securing employment in the new area.|
As you can see from looking at this – another major requirement for home loan approval includes looking at your Total Debt Ratio. meaning, not only are they looking at the idea of how much your housing payment (or PITI) is when compared to your Gross monthly income – they are also looking at how much your TOTAL debt is when compared to your monthly Gross Income. In general, USDA Home Loans have ratios of 29/40.
We can get exceptions, however. Specifically, if you have offsetting compensating factors – Underwriters can approve loans right now above the 40% benchmark.
If you have questions about purchasing a home in the Raleigh Metro area or want to know more about FHA Underwriting Guidelines in NC-, FHA Compensating Factors for High Ratios, and get info on the BEST mortgage rates Available? Just leave us a comment below – or call us!