FHA Loan DTI Requirements: What You Need to Know
FHA loans, insured by the Federal Housing Administration, are known for more flexible qualification requirements than conventional mortgages. This includes more generous debt-to-income ratio limits, making them a popular choice for first-time homebuyers and borrowers with higher debt loads.
FHA DTI Limits
FHA guidelines set the following DTI thresholds:
- Front-end DTI: 31% maximum (housing costs only)
- Back-end DTI: 43% standard maximum (all debts)
- With compensating factors: Up to 50% back-end DTI
- With AUS approval: Up to 57% in some cases through automated underwriting
Compensating Factors for Higher DTI
FHA allows higher DTI when borrowers demonstrate compensating factors:
- Cash reserves: 3+ months of mortgage payments in savings after closing
- Minimal payment shock: New housing payment is similar to current rent/mortgage
- Residual income: Sufficient leftover income after all obligations
- Additional income: Documented income not used in qualification (e.g., a spouse's income on a single-borrower application)
- Strong credit history: On-time payments on existing obligations
FHA vs. Conventional DTI Comparison
- FHA: 43-57% back-end DTI possible
- Conventional: 43-50% back-end DTI possible
- FHA advantage: More flexible compensating factor allowances and lower credit score requirements (580+ for 3.5% down)
How FHA Lenders Evaluate DTI
FHA lenders use two automated underwriting systems: FHA TOTAL Scorecard (through Fannie Mae's Desktop Underwriter) and GUS (through Freddie Mac's Loan Prospector). These systems weigh DTI alongside credit score, down payment, reserves, and employment stability to generate an approval recommendation.
If automated underwriting declines the application, manual underwriting is available with stricter DTI caps (typically 31/43 with one compensating factor, or 37/47 with two).
Tips for FHA Approval with High DTI
- Build up 3+ months of cash reserves before applying
- Keep your credit score as high as possible — 620+ gives best flexibility
- Document all income sources thoroughly
- If possible, show minimal payment shock (new payment similar to current housing cost)
- Pay down credit card balances to reduce minimum payments