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 (2021) 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 2021:
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 simple. 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."
2021 DTI Limits for FHA Loans: 31% / 43%
According to official FHA guidelines, borrowers are generally limited to having debt ratios of 31% on the front end, and 43% on the back end.
But the back-end ratio can be as high as 50% for certain borrowers, particularly those with good credit and other "compensating factors." See the table below for a breakdown of debt-to-income, credit scores, and compensating factors.
Those are the current FHA DTI ratio limits for 2021. We expect these requirements to remain in place throughout the year, since HUD has not announced any changes to them. If they do update their debt ratio guidelines in 2022, 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.
Image: Compensating factors for debt ratios in manual underwriting. Source: HUD Handbook 4000.1
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.
- Cash reserves: Mortgage lenders can sometimes make DTI exceptions for borrowers who have substantial cash reserves in the bank. In this context, "substantial" typically means that the borrower has at least one to three months worth of mortgage payments in the bank after closing. The exact requirement can vary depending on the loan parameters.
- Minimal increase: If the home loan being assumed will only result in a minimal increase in the borrower's monthly housing expense, he or she may still qualify for an FHA loan with a higher-than-average debt burden.
- Residual income: The term "residual income" refers to money that's left over each month after all of your major expenses are paid (including housing, taxes, and debt payments). If a borrower will have sufficient residual income after all monthly bills are paid (including the mortgage), he or she might be able to exceed the standard debt-to-income ratio limits shown above.
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 2021, and the compensating factors that could allow you to circumvent them, you can refer to the Single Family Housing Policy Handbook (HUD Handbook 4000.1) or speak to a HUD-approved lender.
To recap, FHA's maximum qualifying debt ratios for borrowers in 2021 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.