FHA Debt-to-Income Ratios
Complete Guide to Qualifying Ratios and Calculations

Your debt-to-income ratio (DTI) is one of the most critical numbers in FHA mortgage qualification. It determines how much house you can afford and whether you qualify for a particular loan amount. This article explains exactly how FHA calculates debt-to-income ratios, what the maximum ratios are based on your credit score, and how compensating factors can help you qualify with higher ratios.

Understanding Debt-to-Income Ratios

Two Types of Ratios

The FHA uses two different ratios to assess your ability to repay a mortgage:

1. Payment-to-Income Ratio (PTI) - Also called the "front-end ratio"

• Measures your new housing payment against your gross income
• Formula: New Monthly Mortgage Payment ÷ Gross Monthly Income = PTI%
• Focuses only on housing costs

2. Debt-to-Income Ratio (DTI) - Also called the "back-end ratio"

• Measures all your monthly debt payments against your gross income
• Formula: Total Monthly Debt Payments (including new mortgage) ÷ Gross Monthly Income = DTI%
• Includes housing plus all other debts

Both ratios must meet FHA requirements for approval.

Why Two Ratios?

The PTI ensures your new mortgage payment alone isn't too large relative to your income. The DTI ensures your total debt load—including the new mortgage—isn't overwhelming. Both must pass for approval.

Example:

• Gross monthly income: $5,000
• New mortgage payment: $1,400
• Other debts (car loan, credit cards, student loans): $400
• PTI: $1,400 ÷ $5,000 = 28% ✓
• DTI: ($1,400 + $400) ÷ $5,000 = 36% ✓

Both ratios must comply with maximum limits.

What's Included in Your Mortgage Payment

Your total monthly mortgage payment includes:

• P&I: Principal and interest on the mortgage
• Real estate taxes: Monthly property tax escrow
• Hazard Insurance: Homeowners insurance
• Flood Insurance: If applicable (required in flood zones)
• MIP: Mortgage Insurance Premium (FHA insurance)
• HOA fees: Homeowners Association dues (if applicable)
• Condominium fees: Building association fees (if condo)
• Ground Rent: If applicable (ground lease properties)
• Special assessments: One-time property charges
• Secondary financing: Payments on second mortgages or home equity loans
• Other escrow payments: Any other amounts escrowed with mortgage

Deduction allowed: If you receive a Section 8 Housing Choice Voucher and it's paid directly to the servicer, the lender may deduct that amount.

Special Calculation Rules

Real Estate Taxes:

• Must use accurate monthly estimates
• For new construction/manufactured homes: Based on land + improvements
• If taxes are abated: Can use abated amount if documented and abatement lasts at least 3 years

Condominium Utility Portion:

• If part of condo fee is clearly attributable to utilities, subtract it from HOA fees before calculating ratios
• Requires documentation from utility company

Temporary Interest Rate Buydowns:

• Use the Note rate (actual mortgage rate), not the temporary buydown rate
• Calculate P&I based on what you'll actually pay after buydown period ends

What's Included in Your Total Debt Payments (DTI)

Your total monthly debt obligations include:

• Your new mortgage payment (all components listed above)
• Car loans and auto payments
• Credit card balances and minimum payments
• Student loans (federal and private)
• Personal loans
• Medical debt (if in collections or payment plan)
• Child support and alimony payments
• Federal debt (student loans, tax debt with payment plan)
• Any other monthly payment obligations

Debts That May Be Excluded

Closed-end debts: Debts with a fixed end date (like car loans) don't have to be included if:

• The debt will be paid off within 10 months from closing, AND
• The cumulative payments of all such debts are 5% or less of your gross monthly income, AND
• You're not artificially paying down the balance to meet this requirement

Secured by deposits: Loans secured against your deposited funds (like a CD-secured loan) where you could repay using those funds don't require consideration if the funds aren't counted as assets.

Authorized user accounts: If you're an authorized user (not primary account holder) on an account, it can be excluded ONLY if:

• The primary account holder has made all required payments for the previous 12 months, AND
• If fewer than 3 payments were required in the past 12 months, the payment still counts

Example of Debt Exclusion

• Car loan: $300/month, will be paid off in 8 months = $2,400 total remaining
• Gross monthly income: $5,000
• $300 ÷ $5,000 = 6% of income
• Debt is more than 5% of income, so it MUST be included (doesn't qualify for exclusion)

Maximum DTI Ratios by Credit Score

What Are Compensating Factors?

Compensating factors are financial strengths that allow borrowers to qualify with higher debt-to-income ratios than normally permitted. They demonstrate additional financial stability beyond standard ratio requirements. The FHA allows compensating factors only for borrowers with 580+ credit scores.

Available Compensating Factors:

1. Verified and Documented Cash Reserves - Money in savings/investments after closing (3-6 months of mortgage payments depending on property type)

2. Minimal Increase in Housing Payment - New mortgage payment is within $100 or 5% of your current housing payment, with clean 12-month payment history

3. No Discretionary Debt - Housing payment is your only open account with a balance; all other credit accounts paid in full monthly for 6+ months

4. Significant Additional Income Not Reflected in Effective Income - Documented overtime, bonuses, or side income for 1+ years that could improve ratios to 37/47 or better

5. Residual Income - Money left over each month after all expenses and debts, meeting or exceeding VA Lenders Handbook thresholds for your region and household size

6. Energy Efficient Homes (EEH) - Property meets energy efficiency standards (new construction, ENERGY STAR certified, or Home Energy Score of 6+)

Quick Reference: Compensating Factors by Ratio Tier

Credit Score	Ratio	PTI/DTI	Compensating Factors Needed
500-579	Standard	31/43	None allowed—hard limit
500-579	EEH	33/45	None (Energy Efficient Home only)
580+	Tier 1	31/43	None required
580+	Tier 1 EEH	33/45	None (Energy Efficient Home only)
580+	Tier 2	37/47	1 factor needed: Reserves, minimal payment increase, OR residual income
580+	Tier 3	40/40	Special condition: No discretionary debt only
580+	Tier 4	40/50	2 factors needed: Choose from reserves, minimal payment increase, additional income, OR residual income

Credit Score 500-579 or No Credit Score

Maximum ratios: 31/43

• Maximum housing payment (PTI): 31% of gross income
• Maximum total debt (DTI): 43% of gross income

Rules:

• Compensating factors are NOT allowed
• Cannot exceed these ratios under any circumstances
• Energy Efficient Homes exception: Can stretch to 33/45

Example with $5,000 gross income:

• Maximum housing payment: $5,000 × 31% = $1,550
• Maximum total debt: $5,000 × 43% = $2,150
• Maximum other debts: $2,150 - $1,550 = $600

Credit Score 580 and Above

Multiple ratio tiers available based on compensating factors:

Tier 1: 31/43 (No compensating factors required)

• Maximum housing payment: 31% of gross income
• Maximum total debt: 43% of gross income
• Best option if you qualify—no extra requirements
• Energy Efficient Homes exception: 33/45

Tier 2: 37/47 (One compensating factor required)

• Maximum housing payment: 37% of gross income
• Maximum total debt: 47% of gross income
• Requires ONE of:
  • Verified and documented cash reserves
  • Minimal increase in housing payment
  • Residual income

Tier 3: 40/40 (Special condition—no discretionary debt)

• Maximum housing payment: 40% of gross income
• Maximum total debt: 40% of gross income
• Only qualifies if housing is your only open account with a balance
• Very specific requirement

Tier 4: 40/50 (Two compensating factors required)

• Maximum housing payment: 40% of gross income
• Maximum total debt: 50% of gross income
• Requires TWO of:
  • Verified and documented cash reserves
  • Minimal increase in housing payment
  • Significant additional income not in effective income
  • Residual income

How to Calculate Your Qualifying Ratios

Step 1: Calculate Gross Monthly Income

Add all income sources documented by the lender:

• W-2 employment income
• Self-employment income
• Rental income
• Social Security
• Pensions
• Military allowances
• Bonuses/overtime/commissions (if properly documented)
• Any other FHA-approved income

Subtract:

• Income that will go away within 3 years
• Negative income from unprofitable rental properties

Step 2: Calculate Total Mortgage Payment

Add all components:

• P&I (principal and interest)
• Real estate taxes
• Homeowners insurance
• Mortgage insurance premium (MIP)
• HOA/condo fees (minus utility portion if applicable)
• Other escrows
• Flood insurance (if applicable)

Step 3: Calculate PTI Ratio

Formula: Total Mortgage Payment ÷ Gross Monthly Income = PTI%

Example:

• Mortgage payment: $1,400
• Gross income: $5,000
• PTI: $1,400 ÷ $5,000 = 0.28 = 28%

Step 4: List All Monthly Debts

• Car loans
• Credit cards (minimum payment or statement balance)
• Student loans
• Personal loans
• Child support/alimony
• Collection accounts ($2,000+ requires 5% imputed payment)
• Any other monthly obligations

Step 5: Calculate Total Fixed Payments

Add the mortgage payment + all other debts

Step 6: Calculate DTI Ratio

Formula: Total Fixed Payments ÷ Gross Monthly Income = DTI%

Example:

• Mortgage payment: $1,400
• Car loan: $350
• Credit card: $75
• Student loans: $200
• Total fixed payments: $2,025
• Gross income: $5,000
• DTI: $2,025 ÷ $5,000 = 0.405 = 40.5%

Step 7: Compare to Maximum Ratios

Check if your PTI and DTI fall within the maximum allowed for your credit score (with or without compensating factors).

Collection Accounts and Debt Calculation

The $2,000 Collection Account Rule

If you have collection accounts totaling $2,000 or more, the lender must do one of three things:

Option 1: Pay in full at or before closing

• Collection account is paid off and removed from DTI calculation

Option 2: Establish a payment arrangement

• You make a formal payment agreement with the creditor
• Actual payment amount is included in DTI calculation

Option 3: Calculate 5% imputed payment

• If no payment arrangement is available, lender calculates: Collection balance × 5%
• This calculated amount is included in DTI
• No documentation required for this method

Example:

• Collection accounts: $5,000
• 5% imputed payment: $5,000 × 5% = $250/month
• This $250 is added to your total monthly debts for DTI calculation

Collections Under $2,000

• Evaluated case-by-case
• Require letter of explanation
• Evaluated as character issue (disregard, inability to manage, or extenuating circumstances)

Undisclosed Debt and Credit Inquiries

Undisclosed Debt

If a debt appears on your credit report during underwriting that wasn't listed on your application, the lender must:

• Verify the actual monthly payment
• Include it in your DTI calculation
• Obtain written explanation from you

This could change your DTI calculation at any point in the process.

Recent Credit Inquiries

The lender must obtain written explanations for all hard inquiries on your credit report made in the last 90 days. Multiple recent inquiries suggest you're taking on new debt, which could affect approval.

Federal, State, and Local Taxes in DTI Calculation

While income taxes aren't included in the DTI ratio itself, they're important for Residual Income calculations (a compensating factor).

The lender documents taxes using:

• Federal, state, and local tax returns from the most recent tax year, OR
• Current pay stubs and tax tables if returns aren't available

Alimony, Child Support, and Maintenance Obligations

Alimony

If your income wasn't reduced by your alimony obligation in calculating gross income, the lender must include the monthly alimony payment in your DTI calculation.

Child Support and Maintenance

These are always treated as recurring liabilities and must be included in your total monthly debt obligations.

Example:

• Gross income: $5,000
• Child support obligation: $400/month
• Mortgage payment: $1,400
• Other debts: $200
• DTI: ($1,400 + $400 + $200) ÷ $5,000 = 36%

Examples: DTI Calculations in Practice

Example 1: Straightforward Qualification

Borrower Profile:

• Gross monthly income: $6,000
• Credit score: 585
• W-2 employment, no self-employment

Proposed Mortgage:

• Purchase price: $350,000
• Down payment: 3.5% = $12,250
• Loan amount: $337,750
• Interest rate: 6.5%
• P&I: $2,140
• Real estate taxes: $250
• Homeowners insurance: $125
• MIP: $200
• HOA fees: $0
• Total mortgage payment: $2,715

Monthly Debts:

• Car loan: $450
• Student loans: $150
• Credit card: $50
• Total debts: $650

Calculations:

• PTI: $2,715 ÷ $6,000 = 45.3%
• DTI: ($2,715 + $650) ÷ $6,000 = 56.1%

Analysis:

• With 580+ score, borrower can qualify at 40/50 with compensating factors
• PTI of 45.3% exceeds 40% PTI limit—DOES NOT QUALIFY
• Even with compensating factors, this exceeds maximum allowed

Result: Borrower must either increase income, reduce purchase price, or make larger down payment.

Example 2: Qualifying with Compensating Factors

Borrower Profile:

• Gross monthly income: $5,000
• Credit score: 590
• Has $15,000 in cash reserves

Proposed Mortgage:

• Loan amount: $270,000
• P&I: $1,700
• Real estate taxes: $150
• Homeowners insurance: $100
• MIP: $130
• Total mortgage payment: $2,080

Monthly Debts:

• Car loan: $300
• Student loans: $100
• Total debts: $400

Calculations:

• PTI: $2,080 ÷ $5,000 = 41.6%
• DTI: ($2,080 + $400) ÷ $5,000 = 49.6%

Maximum allowed at 580+ score:

• 40/50 ratio (with two compensating factors)
• PTI limit: 40%
• DTI limit: 50%

Analysis:

• PTI of 41.6% exceeds 40% limit by 1.6%
• DTI of 49.6% is within 50% limit
• Borrower has verified cash reserves (compensating factor)
• Reserves: $15,000 = 7.2 months of mortgage payments (exceeds 3-month requirement)
• With strong cash reserves, lender can approve using 40/50 ratios

Result: APPROVED with compensating factor of verified cash reserves

Example 3: Collection Accounts Impact

Borrower Profile:

• Gross monthly income: $4,500
• Credit score: 575
• Has collection account balance: $3,500

Mortgage Details:

• Total mortgage payment: $1,350

Monthly Debts without collection:

• Car loan: $250
• Credit cards: $100
• Subtotal: $350

Collection Account Treatment:

• Balance: $3,500 (exceeds $2,000 threshold)
• Imputed payment (5%): $3,500 × 5% = $175/month

Total Monthly Debts:

• Debts: $350
• Collection imputed payment: $175
• Total: $525

Calculations:

• PTI: $1,350 ÷ $4,500 = 30%
• DTI: ($1,350 + $525) ÷ $4,500 = 41.7%

Maximum allowed at 500-579 score:

• 31/43 ratio (no compensating factors)
• PTI limit: 31% ✓ (30% is within limit)
• DTI limit: 43% ✓ (41.7% is within limit)

Result: APPROVED - Both ratios within 500-579 maximum

Key Takeaways for FHA Debt-to-Income Ratios

1. Both PTI and DTI must qualify: Your housing payment alone (PTI) and your total debts (DTI) must both be within limits—one passing ratio isn't enough.

2. Credit score determines your maximum ratios: 500-579 borrowers are locked at 31/43; 580+ borrowers can access 31/43, 37/47, 40/40, or 40/50.

3. Mortgage payment includes more than P&I: Taxes, insurance, HOA fees, MIP, and other escrows all count toward your housing payment for ratio calculation.

4. All debts are included in DTI: Car loans, credit cards, student loans, child support, and even imputed collection payments count toward your total debt obligations.

5. Some debts can be excluded: Closed-end debts paid off within 10 months at 5% of income or less can be excluded.

6. Collection accounts $2,000+ get imputed: If collections total $2,000 or more, they're calculated as 5% of the balance if not paid off (unless you arrange payment).

7. Compensating factors provide flexibility: For 580+ borrowers, cash reserves, minimal payment increases, no discretionary debt, additional income, or residual income can justify higher ratios.

8. Undisclosed debt kills approval: Any debt discovered during underwriting must be added to your DTI, potentially disqualifying you.

9. Real estate taxes must be accurate: Using estimated tax amounts affects your qualifying—must be based on actual property assessment.

10. DTI is often the limiting factor: While PTI determines affordability, DTI often determines maximum qualification by including all outstanding debts.

Conclusion

Your debt-to-income ratio is the primary measure lenders use to determine if you can afford the mortgage. Understanding how the lender calculates PTI and DTI—what's included, what can be excluded, and how your credit score affects maximum ratios—helps you know exactly how much you can qualify for before you apply. If your ratios are too high, either increasing your income, reducing your debts, lowering your purchase price, or putting down a larger down payment can bring you within acceptable limits. Working with your lender to understand your specific ratios and options is critical to successful FHA mortgage approval.