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Facts About FHA Home Loans

by Janet Wickell

An FHA loan allows you to buy a house with as little as 3% down, instead of the higher percentages required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home.

The FHA does not make home loans--it insures them. If a home buyer defaults, the lender is paid from the insurance fund. To get an FHA home loan, you'll need to have a good credit history, and sufficient income to qualify for the loan.

How Much FHA Loan Can You Afford?

For an FHA loan, your monthly housing costs should not exceed 29% of your gross monthly income. Total housing costs include mortgage principal and interest, property taxes, and insurance. Those four terms are often lumped together, and referred to as PITI.


Monthly income X .29 = Maximum PITI

For a monthly income of $3,000, that means
$3,000 x .29 = $870 Maximum PITI

Your total monthly costs, adding PITI and long term debt, should be no more than 41% of your gross monthly income. Long term debt includes such things as car loans and credit card balances.


Monthly income x .41 = Maximum Total Monthly Costs

For a monthly income of $3,000, that means
$3,000 x .41 = $1230

$1,230 total - $870 PITI = $360 allowed for monthly long term debt

The ratios for an FHA loan are more lenient than for a typical conventional loan. For conventional home loans, PITI expense cannot usually exceed 26-28% of your gross monthly income, and total expense should be no more than 33-36%.




How Much FHS Loan Can I Afford?

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