When you submit an application for an FHA-insured home loan, the mortgage lender will evaluate your debt-to-income ratio to see if you're qualified for a loan. If you have too much debt in relation to your monthly income, you might have trouble qualifying. On the other hand, if you have a manageable level of debt (as defined below), you have one less thing to worry about.
The current (2015) limits for FHA debt-to-income ratios are 31% for housing-related debt, and 43% for total debt. But there are exceptions to these general rules. So don't be discouraged if you're slightly above those numbers.
Here's an overview of FHA debt ratio requirements for 2015 - 2016:
Definition of a Debt-to-Income Ratio
The debt-to-income ratio (DTI) is a percentage that shows how much of a person's income is used to cover his or her recurring debts. Lenders calculate DTI at the monthly level using the borrower's gross, or pre-tax, income.
There are actually two numbers used for FHA qualification:
- The "front-end" ratio looks at housing-related debts only (monthly mortgage payments, property taxes, etc.).
- The "back-end" number takes all recurring monthly debts into account. This can include the mortgage payment, credit cards, car loans, etc.
The math is fairly simply. You can calculate your DTI ratio by dividing your total monthly debts by your gross (pre-tax) monthly income. For example, if my recurring monthly debts total $2,000, and my gross monthly income is $6,000, I have a DTI ratio of 33% (2,000 ÷ 6,000 = 0.33, or 33%).
The Department of Housing and Urban Development (HUD) has specific guidelines for FHA debt-to-income ratios. HUD is the government entity that establishes all of the rules and requirements for the FHA loan program, including the DTI limits.
According to HUD: "Qualifying ratios are used to determine if the borrower can reasonably be expected to meet the expenses involved in home ownership, and provide for his/her family."
2015 DTI Limits for FHA Loans: 31% / 43%
According to official FHA guidelines, borrowers are limited to having debt ratios of 31% on the front end, and 43% on the back end. Here are the relevant excerpts from the HUD Handbook:
- Front end: "The relationship of the mortgage payment to income is considered acceptable if the total mortgage payment does not exceed 31% of the gross effective income."
- Back end: "The relationship of total obligations to income is considered acceptable if the total mortgage payment and all recurring monthly obligations do not exceed 43% of the gross effective income."
Stated differently, the borrower's housing-related expenses should add up to no more than 31% of his or her gross monthly income. And the borrower's total debt load (including the monthly mortgage payments, credit cards, car payments, etc.) should not exceed 43% of his or her gross monthly income.
Those are the current FHA DTI ratio limits for 2015. We expect these requirements to remain in place for 2016, since HUD has not announced any changes to them. If they do update their debt ratio guidelines in 2016, we will update this page to reflect those changes.
Compensating Factors for Borrowers with High Debt
On the surface, this suggests that borrowers with DTI numbers above the stated limits could have a harder time qualifying for FHA loans. But that's not always the case. There are exceptions to the official debt-to-income caps.
HUD gives mortgage lenders some leeway to approve borrowers with DTI ratios higher than the above-stated limits, as long as the lender can find and document "significant compensating factors."
A partial list of compensating factors is presented below.
- Down payment: HUD requires a minimum down payment of 3.5% for FHA loans. Making a down payment above the minimum could create an exception to the debt-to-income limits mentioned above. For instance, borrowers who put down 10% could still qualify for an FHA-insured mortgage loan, even if their DTI ratios are higher than the 2015 limits mentioned earlier (31% / 43%).
- Payment history: If, in the past, the applicant has successfully managed mortgage payments equal to or greater than the estimated payments on the loan they are currently seeking, he or she may still qualify for the program.
- Savings: HUD also allows FHA debt-to-income exceptions for borrowers who have demonstrated a "conservative attitude toward using credit" in the past, and have the ability to accumulate savings. In other words, limited use of credit and substantial savings could work in your favor, even if your DTI ratio is higher than the stated limits.
- Good credit: The borrower's credit history plays a role here as well. In short, borrowers with excellent credit scores have a better chance of getting approved for a government-insured home loan, even if their debt exceeds the minimum HUD guidelines.
- Cash reserves: We touched on this earlier, under "savings." Lenders can make DTI exceptions for borrowers who have substantial cash reserves in the bank. In this context, "substantial" means the borrower has at least three months worth of mortgage payments in the bank after closing.
- Minimal increase: If the FHA loan being sought will only cause a minimal increase in the borrower's housing expense, he or she may still qualify for an FHA loan with a higher-than-average debt burden.
Reference: HUD Handbook 4155.1, Chapter 4, Section F
Note: Mortgage applicants don't necessarily have to meet all of these compensating factors. One or more may be sufficient for FHA qualification purposes.
To learn more about FHA debt-to-income ratios in 2015, and the compensating factors that could allow you to circumvent them, refer to Chapter 4 of HUD Handbook 4155.1.
To recap, FHA's maximum qualifying debt ratios for borrowers in 2015 are 31% and 43%. This means the monthly housing payments should not exceed 31% of gross monthly income, while the total debt burden should not exceed 43% of monthly income. But there are exceptions to these rules, as noted above.
Disclaimer: HUD makes changes to their FHA requirements from time to time. While we make every effort to keep this website up to date, there is a chance the information presented above will become inaccurate over time. This website is not meant to replace the official guidelines found on the HUD website, but only to explain their policies in plain English. For the most current and accurate information available, refer to HUD.gov.