FHA Debt Ratios
Lender guideline requirements for FHA & conventional mortgage debt ratios.
To begin the process of understanding FHA debt ratios and conventional mortgage debt ratios, we'll need to first take a look at what they are. There are two specific ratios that play a role in a lender's underwriting decision. They are called your front-end ratio & your back-end ratio.
Lets start by defining these:
- Front-End Ratio - This is your gross monthly income, divided by your existing or proposed PITI mortgage payment. The underwriting guidelines cap these debt ratios by type of loan.
- FHA Loan - The maximum front-end debt ratio for an FHA mortgage is 29%.
- Conventional - The maximum front-end debt ratio for a conventional mortgage is 28%.
- Back-End Ratio - This is your gross monthly income, divided by your existing or proposed PITI mortgage payment and the monthly payments of all other liabilities. Again, guidelines cap your back-end ratio by the type of loan.
- FHA Loan - The maximum back-end ratio for an FHA mortgage is 41%.
- Conventional - The maximum back-end ratio for a conventional loan is 36%.
As you can see, an FHA loan gives you a lot more flexibility in your debt-ratios for qualifying -- especially on your back-end debts. So, let's take a look at what is included in calculating front-end and back-end debt ratios.
Your front-end debt ratio will only include either your monthly rent payment, your existing PITI mortgage payment, or when qualifying for a loan, your proposed PITI mortgage payment. You also must include any HOA & CCD payments. Please see our PITI mortgage calculator. You will want to keep your proposed PITI mortgage payment at 29% or lower as a percentage of your gross monthly income being used for mortgage qualifying purposes.
Your back-end debt ratio can get a bit confusing when it comes to what types of debt to include in the calculation for debt ratio purposes. Here are the types of debts you should use in calculating back-end debt ratios:
- Credit Cards
- Student Loans*
- Child Support*
- Federal/State Tax Lien Repayment Plans*
- Personal Loans*
- Auto Loans*
- Installment Loans*
* Not included when less than 9 months remain for full payoff of the debt.
When factoring your back-end ratios, do not include these types of debts:
- Utility bills - Home phone, water, electric, trash, sewer, etc.
- Car, health, life, and other insurance bills
- Cell phone bills
- Any other bills not reflected on your credit report
The combined front-end and back-end debt ratios are what lenders call your debt-to-income. As you can see, they're rather important numbers for not only financing purposes, but also for personal household cashflow control. For some home buyers with excellent credit and historically strong money management skills, debt ratio exceptions can be made for both conventional and FHA mortgage programs. Use these great calculators to see how your debt ratios come into play in the ability to buy a home. Each of these calculators uses your debt ratios to arrive at a result: