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FHA Affordability Formula:
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The FHA (Federal Housing Administration) affordability formula calculates the maximum monthly mortgage payment a borrower can afford based on income and existing debt obligations. It uses both front-end (31%) and back-end (43%) ratios to determine affordability.
The calculator uses the FHA affordability formula:
Where:
Explanation: The formula calculates both the housing-only payment (31% of income) and total debt payment (43% of income minus existing debts), then takes the lower of the two values.
Details: This calculation helps borrowers understand their purchasing power and ensures they don't take on more mortgage debt than they can reasonably afford while maintaining other financial obligations.
Tips: Enter your gross monthly income (before taxes) and total monthly debt obligations (credit cards, car payments, student loans, etc.). All values must be positive numbers.
Q1: What is included in monthly debt?
A: Include all recurring monthly debt payments - credit cards, car loans, student loans, personal loans, and any other installment debts.
Q2: Are these ratios strict requirements?
A: While FHA allows up to 31%/43% ratios, lenders may approve borrowers with higher ratios if they have compensating factors like excellent credit or significant savings.
Q3: Does this include property taxes and insurance?
A: Yes, the calculated amount should cover principal, interest, taxes, and insurance (PITI).
Q4: How accurate is this calculator?
A: This provides a general estimate. Actual loan approval amounts may vary based on credit score, interest rates, and other factors.
Q5: Can I exceed these ratios?
A: Some lenders may approve ratios slightly higher than 31%/43% with strong compensating factors, but this is generally not recommended.