Factors To Determine The Texas FHA Loan Amount You Qualify To Borrow Or Can Afford
Many of the questions that we get from your potential applicants of FHA (Federal Housing Administration) loans and readers tend to touch on issues related to ‘how much’. We get tons of frequently asked questions (FAQs), and some of the most common inquiries include:
• What minimum income level do I need to qualify for the FHA loan?
• What kind of house can I afford once my FHA loan is approved?
• What mortgage amount can I get with the FHA loan?
The goal of this post is to answer these frequently asked questions. We will start by going over the official application guidelines for an FHA loan as stipulated by the HUD (Department of Housing and Urban Development) of America. Next, we shall examine how financial institutions and mortgage lenders implement these guidelines when offering mortgage loans. We also will delve into other factors that these lenders consider to determine the FHA loan amount you qualify to receive based on your income.
FHA loans are offered at 43% debt to income ration. That means your combined debts after taking the loan should not exceed your gross monthly income by more than 43%. Fortunately, there are exceptions to this rule. For instance, you can get an FHA loan approved if you have a DTI (debt to income ratio) of up to 50% if you have a significant amount of savings in your bank account, or numerous sources of income.
What Mortgage Amount Can You Take With An FHA Loan?
In as much as there are directives regulating what amount you can get when applying for an FHA loan, the lender does have some substantial prerogative in decide the mortgage amount to offer. In short, the lender can determine how much of the FHA loan to give you based on your gross monthly income, the HUD withstanding.
The lender will first review the official HUD Handbook 4000.1 to examine the FHA loan guidelines when determining the much you qualify to get for the FHA loan. The HUD handbook is commonly referred to as the Single-Family Housing Policy Handbook.
Section II-A-5 of the handbook stipulates the “approvable ration requirements” in which the term “ratio” is used in reference to the DTI (debt to income ratio). The DTI is based on a comparison of the cash amount you can get from your income in relation to what you spend on servicing your recurring debts.
As such, the DTI is one of the most crucial factors that influence the mortgage amount you qualify to borrow or receive when applying for an FHA loan. It also determines the type of house you can afford to buy. The DTI might be one of the influential elements used to calculate the much you can borrow when purchasing a home or property, but it is not the only decisive factor that lenders consider.
You should be aware of two essential rations when acquiring an FHA loan; these are:
- Total Mortgage Payment to Effective Income Ratio (PTI)
It indicates the much from your gross monthly income that can be used to service your housing costly – primarily meeting your mortgage loan obligations. The PTI ratio is also referred to as the ‘front-end debt’ ratio.
- Total Fixed Payments to Net Income Ratio (DTI)
It indicates the much from your gross monthly income will go towards the servicing of your monthly debts, such as your credit card payments, mortgage payments, or car payments. The DTI is also known as the ‘back-end’ debt ratio.
To have your loan application approved, you must meet the 31% – 43% threshold. That means your mortgage payments will have to take up less than 31% of your gross monthly income while the total monthly debts should consume less than 43%. You should use this rule when trying to determine the FHA loan amount to borrow. It is one of the determinants mortgage lenders will use to calculate the FHA loan you qualify to receive.
An individual applying for an FHA loan has a gross monthly income of $6,000. The applicant should have total debts (inclusive of credit card expenses, car payments, mortgage, and other recurring expenses) that are less than $2,580 each month. That figure is determined by the following calculation (gross monthly income X 0.43). And the total mortgage payments should be less than $1,860, which is a figure reached using the following calculation (gross monthly income X 0.31).
Keep in mind that the applicant can qualify to get the FHA loan if the lender determines that the borrower has a Total DTI of up to 50%.
Attaining a total DTI of up to 50% is something that is possible based on several exceptions applied to the 31% – 43% rule. A mortgage lender can do checks and find ‘compensating factors’ that indicate the applicant is an excellent candidate for the FHA loan. The then lender can give some leeway for a higher back-end ration that can be as much 50% in some situations. Some of the ‘compensating factors’ considered by mortgage lenders include:
• Residual income
• Significant additional income not reflected in gross monthly income
• Minimal increments in housing payments
• Documented and confirmed cash reserves
Keep in mind that the mortgage lender will also take into account many other factors before determining if you qualify for the FHA loan and the amount to offer. Therefore, if you are thinking of applying for an FHA loan, you should contact a lender that has the recognition and approval of the HUD (Department of Housing and Urban Development) of America. Ask them to be upfront about your prospects of qualifying for the loan. Answering this question will be a matter determined by doing background checks on your income level, debt situation, and credit history, among other things.
Which Kind Of House Can I Afford To Buy?
At this point, we hope that you have enough knowledge about the amount of mortgage you can get with an FHA loan. But it only is half the picture. You must know what type of house you will be in a financial position to afford when applying for an FHA backed mortgage. You do not need to rely on an expert to figure this out.
Always remember that it is possible for an FHA mortgage to be too huge for you to service or it can become affordable as time passes depending on how your financial situation fluctuates. In some cases, loans become a financial burden in the long that many people cannot afford and thus they face foreclosures.
That is why we highly recommend that you create a basic housing budget so that it helps you avoid getting yourself in a financial crisis. It will help you know the kind of house you can comfortably afford based on the much you qualify to get when you apply for the FHA loan.
The wisest investment decision you can make when purchasing a home is to ensure that you can comfortably finance the mortgage. That means you able to make the monthly mortgage payments and meet other recurring monthly expenses while also managing to save some money.
How Can You Determine The Type Of Home You Can Afford?
Below are a few expert tips on how you can determine the best kind of house to afford with the FHA loan comfortably
• Compare net monthly income and overall expenses
Your net monthly income is the total payments you receive at the end of the month. So, the goal is to figure out your total expenditure which means knowing the costs your accrue each month on your housing-related expenses including gas, food, electricity bill, car payments, credit card payments, entertainment, and your savings contributions.
• Subtracting monthly expenses from the net income
Once you have determined the much you spend on your monthly bills, you then need to deduct that amount from the net monthly income. What you are left with is what you go towards servicing the mortgage.
Keep in mind that you do not have to put all that money into that basket meant for repaying the FHA loan. You also need to set up an account for emergency funds. Overall, once you have deducted what you need to cater to your monthly expenses, you will then assess what is left to know what you can save for a rainy day and the much that will be for mortgage payments after you have purchased your new home.
You will be expected to honor your loan obligations. But that does not mean that serving the mortgage should strain your pockets. You also should ensure that you have some bit of money left at the of the month for a rainy day. You never know what tomorrow has in store for you; thus, you should have some cash lying around to cater for the unexpected expenses, such a car repairs and hospital visits. Exercising financial prudence dictates that you sort your income to ensure that it caters to your expenditures, debts, and you also manage to set something aside for emergencies.
When you implement the tips discussed above, you will be able to determine which is the ideal type of house you can afford using the FHA loan or any other kind of mortgage.
Which Other Things Do I Need To Get An FHA Loan Approved?
First and foremost, you should have enough monthly income. Mortgage lenders will examine your level of income and consider this when determining if you qualify for a loan and which type and amount to offer you.
Besides having a dependable monthly income, you also must take into account other factors that influence your chances of getting the loan request approved. Some of these things include:
• Down Payment
When you are looking to get an FHA loan, you will need to provide 3.5% of the price of the house you plan to buy, or its appraised value. That is why you must consider this when you are researching the kind of home you can comfortably afford if you will be relying on an FHA mortgage program to help finance the acquisition of the property.
• A Good Credit Score
According to the HUD guidelines for FHA loans, borrowers seeking the maximum amount on an FHA loan should have a credit score of 580 or more. They also should be able to make a 3.5% down payment for the loan. Note that some mortgage lenders will require loan applicants that want the maximum amount to have a higher credit score.
• Manageable Debt
Lastly, you should not overlook the DTI (debt to income ratio) for the FHA loan. It is one of the crucial determinants that lenders consider when approving a loan request.
And there you have it; we have sufficiently answered the two most essential questions, namely:
1: How much of an FHA loan can I get based on my monthly income?
2: What type of house can I afford to buy with the FHA loan?
The above are the pertinent questions you need to think about when applying for this loan. Most importantly, you should come up with a basic housing budget before you start the application process for the FHA mortgage.