What is the debt ratio for an FHA loan?

The Federal Housing Administration (FHA) provides low- and moderate-level income earners the opportunity to purchase a home through special mortgage programs. FHA-approved lenders offer loans to certain borrowers based on their household income levels and total assets, as well as other eligibility requirements that include calculations of total monthly debt payments.

FHA Debt Ratio Calculations

A borrower seeking approval for an FHA mortgage must provide accounting information that enables a lender to calculate the borrower's debt ratio, also called the debt to income ratio. This figure is a measure of either the total percentage of the borrower’s income that must be used for all debt repayments each month or the total percentage of income that must be used to repay the new mortgage. Most lenders calculate both ratios to determine qualification.

The simple debt to income ratio, also known as the front-end ratio, is calculated by adding together all aspects of the mortgage payment, including taxes, insurance, interest and principal, dividing that total by the borrower’s total income and multiplying that number by 100. However, the total debt to income ratio, also known as the back-end ratio, takes into account all debt payments, such as the new mortgage, student loans, vehicle and personal loans with more than nine months of repayment left, as well as high credit card balances. That total is then divided by total income and multiplied by 100.

For FHA mortgage loans, borrowers are typically disqualified from borrowing when the front-end ratio exceeds 29%, or when the back-end ratio exceeds 41%.