FHA MortgageLearn if You Qualify For An FHA Mortgage


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FHA FINANCING

QUALIFYING AT “GROSS”


1. TOTAL HOUSING EXPENSE RATIO 31% MAX


PRINCIPAL & INTEREST 941

RE TAX 100 HAZARD INSURANCE 50

MIP 67 TOTAL PAYMENT $1,158

1158 / 4800


TOTAL PAYMENT DIVIDED BY GROSS MONTHLY INCOME EQUALS:


.24 (WHICH IS LESS THAN .31---OK ON THE FRONT END RATIO)


HAD THE RATIO BEEN OVER .31 IT WOULD SUGGEST THAT YOU ARE PURCHASING TOO MUCH HOUSE UNLESS YOU HAD OTHER "COMPENSATING FACTORS" AT WORK.


2. TOTAL FIXED PAYMENT RATIO 43% MAX


TOTAL PAYMENT 1158

PLUS ALL OTHER MONTHLY DEBT 600 EQUALS TOTAL FIXED PAYMENT $1,758

$1,758 / $4,800

TOTAL FIXED PAYMENT DIVIDED BY GROSS MONTHLY INCOME EQUALS:


.37 (WHICH IS LESS THAN .43---OK ON THE BACK END RATIO)


HAD THE RATIO BEEN OVER .43 IT WOULD SUGGEST THAT YOU ARE PURCHASING TOO MUCH HOUSE AND/OR YOUR DEBT LOAD IS TOO HIGH UNLESS YOU HAD OTHER "COMPENSATING FACTORS" AT WORK.


IN THE FIRST EXAMPLE THE RATIO IS OFTEN CALLED THE FRONT END RATIO OR THE HOUSING TO INCOME RATIO.


IN THE SECOND EXAMPLE THE RATIO IS OFTEN CALLED THE BACK END RATIO OR THE HOUSING PLUS DEBTS (NORMALLY DEBTS OF 12 MONTHS OR MORE SUCH AS CREDIT CARDS, AUTO LOANS, STUDENT LOANS ETC.) TO INCOME RATIO.


THEY ARE QUITE EASY TO CALCULATE AS A BASIC CALCULATOR WILL WORK JUST FINE.


JUST PLUG IN THE NUMBERS AND MAKE SURE YOU HAVE ALL OF YOUR DEBTS INCLUDED--ALONG WITH A REASONABLE (USUALLY NO MORE THAN 30% OF YOUR MONTHLY INCOME) MONTHLY HOUSING PAYMENT ESTIMATE.


NOTE:


RE TAX MEANS REAL ESTATE TAX (PAID ANNUALLY BUT PUT IN AN ESCROW ACCOUNT BY YOUR LENDER ON A MONTHLY BASIS)


HAZARD INSURANCE IS YOUR MONTHLY HOMEOWNER'S INSURANCE (PAID ANNUALLY BUT PUT IN AN ESCROW ACCOUNT BY YOUR LENDER ON A MONTHLY BASIS)


MIP STANDS FOR MORTGAGE INSURANCE PREMIUM AND IF IT IS FINANCED INTO THE LOAN IT TO WILL BE ESCROWED. IT IS BASICALLY A PREMIUM CHARGED BY THE LENDER SO THEY CAN OFFER LOW DOWN PAYMENT LOANS.


IF YOU PUT 20% OR MORE DOWN ON YOUR HOME PURCHASE YOU WILL NOT HAVE THIS FEE.


CONVENTIONAL (NON-FHA LOANS) LOANS HAVE WHAT IS CALLED PMI (PRIVATE MORTGAGE INSURANCE) AND IT WORKS PRETTY MUCH THE SAME WAY. YOU NORMALLY DO NOT HAVE TO PAY THE PREMIUMS FOR THE FULL LOAN TERM WHETHER MIP OR PMI. ONCE YOU GET TO AN EQUITY POSITION DETERMINED BY YOUR LENDER YOU CAN HAVE THE PREMIUM ELIMINATED.

EARNEST MONEY IS THE AMOUNT THAT YOU SUBMIT WITH THE OFFER TO PURCHASE TO SHOW THE SELLER YOUR SERIOUS INTENT TO PURCHASE. IT IS NORMALLY $1000 OR MORE IN GEORGIA.




Example FHA Loan With 3.5% Downpayment




(Must have a 620 Middle Credit Score from the 3 Credit Bureaus to Qualify)


SALES PRICE = 150,000

EARNEST MONEY = 1,000

DOWN PAYMENT = 3.5%

INTEREST RATE = 7%

MORTGAGE INSURANCE PREMIUM = 2.25%

LOAN TERM = 30 YEARS

MONTHLY INCOME = 4,800

MONTHLY DEBTS = 600

150,000 SP 4,500 DP --------------- 145,500 LOAN AMOUNT 3,274 MIP ---------------- 142,226 FINANCE AMOUNT


PRINCIPAL & INTEREST 941

TAXES 100

INSURANCE 50

MIP 67 Total Monthly Payment 1,158

TAX = 600 ANNUAL

INSURANCE = 600 ANNUAL ESCROW

MIP = 134 2 MONTHS ESCROW

EARNEST MONEY = (1,000) SUBTRACT OUT

ESTIMATE OF DP = 6,392-1,000 = (4500+600+134+1158)OR $5,392

Always bring an extra 1/3 of closing cost estimate to CLOSING.


HOUSING VS INCOME RATIO 1,158/4800 = .24 FHA QUALIFYING = .31

HOUSING & DEBT VS INCOME RATIO 1,158 + 600/4800 = .37 FHA QUALIFYING .43



NOTE: ALL DATA LISTED ABOVE IS HYPOTHETICAL IN NATURE, ACTUAL DOWN PAYMENT CALCULATIONS WILL VARY ACCORDING TO LOAN TYPE, YOUR UNIQUE CREDIT SITUATION, CLOSING COSTS AND NEGOTIATION.


YOU ALSO MAY BE REQUIRED TO HAVE SEVERAL MONTHS HOUSING PAYMENTS IN YOUR BANK ACCOUNT AFTER CLOSING.



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About This Article:

 

The above article was written by Thomas (TJ) Underwood.   Thomas (TJ) Underwood is the writer behind The Wealth Increaser, Home Buyer 411,  Home Seller 411, The 3 Step Structured Approach to Managing Your Finances, Managing & Improving Your Credit & Finances for this MILLENNIUM and CREDIT & FINANCE IMPROVEMENT MADE EASY—FREE GUIDE. 

He is the creator of TheWealthIncreaser.com where he regularly blogs about helping consumers improve their credit, finance and real estate pursuits in an intelligent, consistent and proactive manner.  He’s always looking for ways to make intelligent finance improvement happen for those who “sincerely desire” success in their future. 

You can contact him from a number of sources but the most direct way is to contact him through the contact us block that can be found at the bottom of this page.  Get highly relevant tips on living your life more abundantly by logging on to TheWealthIncreaser.com.



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