In an effort to prevent homebuyers from purchasing a home they will not be able to afford, the FHA has set requirements and guidelines which require borrowers and their spouse to qualify based on set debt to income ratios. These ratios are used in calculating the potential borrowers financial position in order to establish whether to or not they will be able to undertake the financial responsibility of owning a home. The two ratios used are:

1.

Housing Ratio

Housing ratio refers to the mortgage payment expenses compared to effective income.
To calculate you add up the total mortgage payment (Including principle, interest, taxes, hazard insurance, mortgage insurance premium, homeowner’s association dues, etc). That amount is then divided by the gross monthly income. For FHA loans the maximum qualifying ratio is 29%.
For example:

John makes $ 3750 a month at his job. His monthly mortgage payment is projected to be $875 a month. To calculate his housing debt to income ratio:

Total mortgage payment $ 875
Gross Monthly Income $ 3750
Divide payment by income $ 875 ÷ $3750
Housing Debt to income Ratio 23.33 %

2.

Total Debt Ratio

Debt ratio refers to all fixed monthly obligations compared to effective income. To calculate you add up the total mortgage payment and all recurring monthly revolving and installment debt. That amount is then divided by the gross monthly income. For FHA loans the maximum qualifying ratio is 41%. For example:

John makes $ 3750, his mortgage payment is $875, his amount of monthly recurring debt is $450. To calculate his debt ratio:

Total mortgage payment $ 875
Monthly recurring debt $ 600
Total amount of monthly debt $ 1475
Gross Monthly Income $ 3750
Divide total debt by income $ 785 ÷ $ 3750
Debt to income Ratio 39.33 %

*Please note that the information provided above does not exclusively determine qualification for an FHA loan. Credit history, job stability, and other factors must still be considered.