FHA Eligibility Calculator - Avoid Common Mistakes

FHA Eligibility Calculator -- The Worst Mistake To Determining Your Maximum Loan

FHA mortgage loans are rising in popularity. Boasting low down payments and the security of fixed rates minus threatening prepayment penalties, FHA is a home buyer's dream loan.

You might not realize it but the Federal Housing Administration, doesn't offer mortgages directly to borrowers for buying a house or refinancing. But FHA does insure approved lenders against losses.

To this end, mortgage professionals approved to offer FHA home loans are backed by the Federal Housing Administration in the event borrowers default on monthly house payments.

Sidebar: A Common Misconception

A common misconception, FHA mortgage insurance does not insure homeowners against job loss, illness or other casualties. For that type of coverage, homeowners should consult an insurance professional.

Getting back to the original idea of an FHA eligibility calculator, let's discuss how lenders determine the maximum mortgage you are qualified to borrow. Several factors are taken into account.

FHA Eligibility Calculator: Housing-To-Income Ratio

The housing-to-income ratio is a simple calculation comparing your income before taxes to your monthly house payment, including property taxes and home owner's insurance. You will make the bank happy if you don't spend more than about 30% of your gross income on your mortgage payment.

FHA Eligibility Calculator: Debt-To-Income Ratio

The debt-to-income ratio accounts for your mortgage payment plus other non-housing expenses. Credit card and car payments, student loans and child support for example are added to monthly housing payments. FHA likes to see this second ratio equal to or less than approximately 40% of your gross monthly income.

FHA Eligibility Calculator: Down Payment And Credit

FHA places much importance on your ability to save a down payment along with the strength of your credit scores and established credit history.

FHA Eligibility Calculator: Exceptions To Guidelines

Now that you have learned a few pointers on eligibility, please do not make the common error of diagnosing yourself like the doctor who was sure he needed brain surgery when only a new pair of glasses were indicated.

For both an FHA refinance mortgage and one for buying a house, guidelines can take surprising twists and turns. For example, it's crucial to know when higher debt ratios are acceptable due to less than 10 payments remaining on a car loan. Or how to determine acceptable sources of down payments.

So instead of self-calculating your eligibility, look for an FHA lender you can trust. Begin by asking friends for specific names of mortgage professionals. Secondly, consult those you know in the real estate industry who often have the best contacts in lending.

As I always like to say, it is your mortgage and you deserve the best.

By the way, you'll be interested to know this is not the first time FHA has stepped up to the plate. In 1934, when an astounding two million construction workers were unemployed, FHA loan guidelines came to the rescue of the houseing market.