How Big an FHA Loan Can I Afford?

Just like regular, conventional loans, the loan amount for which a borrower might qualify is largely dependent on a borrower's Debt-to-Income ratios (DTI). THere are two ratios used: the Housing Ratio (sometimes called the "Top" ratio) and the Total Debt Ratio (sometimes called the "Bottom" ratio).

Your monthly Housing Ratio is calculated by dividing your total monthly housing cost by your  total monthly gross income. Your Housing Ratio should not exceed 31% of your gross monthly income for an FHA Loan. (If there are two borrowers applying for the loan, the monthly gross income for both borrowers might be used). Total housing costs are commonly referred to as PITI:

P = Principal

I = Interest

T = Taxes

I = Insurance

Examples:

Monthly Income x .31 = Maximum PITI
$3,000 x .31 = $930 Maximum PITI

Your monthly Total Debt Ratio is calculated by dividing your total monthly costs (PITI plus other, long-term debt like car loans, student loans, and/or the minimum monthly payments for credit cards) by your total monthly gross income. (Bills for cable/internet/phone/water/power ARE NOT INCLUDED in this calculation.) Your Total Debt Ratio should not exceed 43% of your gross monthly income for an FHA Loan. (If there are two borrowers applying for the loan, remember that the long-term debt for BOTH BORROWERS must be included when calculating the monthly long-term debt payments).

Monthly Income x .43 = Maximum Total Monthly Costs
$3,000 x .41 = $1,290
$1,290 total - $930 PITI = $360 Allowed for Monthly Long-Term Debt

FHA Loan ratios are more lenient than a typical conventional loan.

 

More FHA info:

 

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