FHA mortgage rates increase to a new year high
FHA mortgage rates have been steadily at 3.25% since the beginning of the year. A 3.25% fixed rate 30 year mortgage is probably the lowest rate on record. However, FHA mortgage rates were at 4.3875% yesterday.
The rapid spike in FHA mortgage rates have hurt millions of mortgage loan borrowers who have not locked their mortgage rates and have disqualified tons of mortgage loan borrowers from closing their mortgage loans because they no longer qualified due to the increase in their mortgage payment caused the increase of their debt to income ratio.
Higher debt to income ratio disqualifies many mortgage loan borrowers
One of the most important advantages FHA mortgage loans has over regular conventional mortgage loans is that FHA mortgage loans have lenier mortgage underwriting guidelines. With conventional mortgage loans, the maximum debt to income ratio allowed is 45%. However, with FHA mortgage loans, the maximum debt to income ratio allowed is 56.9%.
Debt To Income Ratios Explained
Debt to income ratio is the total amount of monthly payments you have divided by the total monthly gross income. For example, say you have a monthly automobile loan payment is $200, credit card payment of $100, and your new mortgage housing payment will be $800 which includes property taxes, and property insurance. Your total monthly payment is $1,000. Now, lets say your gross monthly income is $2,000. To calculate your debt to income ratio, you would take your $1,000 monthly expenses by your gross income of $2,000 which yields 50% debt to income ratio. You would not qualify for a conventional mortgage loan but will qualify for a FHA mortgage loan.
Higher FHA mortgage rates mean higher monthly payment
Folks who got devasted from the recent FHA mortgage rates spike are those mortgage loan borrowers who had high debt to income ratios. A $10 increase in monthly payment can disqualify a mortgage loan borrower who had debt to income ratios at the maximum allowed limit allowed by FHA mortgage guidelines of 56.9%. 56.9% is the maximum debt to income ratio allowed by law and anything over that threshold is an automatic disqualification. No exception. The Automated Underwriting System will deny any debt to income ratios about 56.9%.