When applying for a FHA home loan in California an important component of qualification is calculating debt-to-income ratios (DTI). There are two different DTI’s important in FHA loans, front ratios and back ratios.
Front ratio is your total monthly house payment (mortgage+taxes+insurance) divided by your total gross monthly income. So for example if you make $70,000 a year and your house payment is $2,000/mo, your front ratio would be 34%. This is acceptable for a FHA home loan. If your front ratio were say 49%, it would be unacceptable.
The back ratio is your housing payment + all your other monthly debt that appears on your credit report (credit card payments, student loans, car payments). So let’s say you make $70,000 a year, you have a $2,000 house payment and you also have a $300 car payment $50 credit card payment and $150 student loan payment. Take your $2,000 house payment + $500 in additional debt = $2,500 and divide into your $5,833 monthly income and you have a 42% back ratio. This is totally acceptable for a FHA home loan. To qualify for a FHA home loan you cannot exceed a 45.9% front ratio and 55.9% back ratio. If your credit score is below par, you could be limited to a 43% back ratio.
So I hope this explanation helps understand a little about the importance of debt-to-income ratios with FHA home loans. If you have any questions please call at 858-922-7899 or email me a firstname.lastname@example.org
Below are some highlights of FHA home loans in California right now:
- FHA loan limits have gone back up in many counties of California where you can now go up to a loan of $729,750 with 3.5% down payment in areas such as Orange County, Los Angeles, San Francisco, San Jose, Anaheim, Santa Ana and others.
- FHA allows for all of the 3.5% down payment to be a gift from a relative
- FHA loan interest rates are at record lows
- FHA loan requirements allow for a non-occupant co-borrower
Sr. Loan Officer