Contributing factor-FHA Loan

jtbone · Joined: 28 Feb 2008 Posts: 2 2.13 Dollars($)

My wife has become self employed in the same industry she has worked for 4 years. She is a hair stylist and is now booth renting. We have sold our current home, as of July, and will be purchasing our new home around that time.
We were told that her income cannot be considered because she has worked less than 1 year self employed, but that it may be a "compensating factor" in a manual underwrite. She does quite well, but if her income is NOT included, our debt ratio will be 64% with the new home. With her income, it will be 38%. The lender seems to think that this will go through. Will they consider my wife's income as a contributing factor to my direct income, or as a lowering of my debt ratio? I guess what I am asking is how this will work. She has obvious deposits into her account almost daily. Lots of Credit Merchant ACH's, etc... Just Curious. Thanks

sara · Posted: Thu Feb 28, 2008 10:27 pm Post subject: RE: spouse income and debt ratio

Hi Jtbone,

Welcome to the forums.

I guess if you become the primary borrower provided your credit and income are ok and your wife the secondary borrower, then there won't be issues relating to her being self-employed for a year. The lender will consider your debt-to-income ratio and not your wife's if you are the primary borrower here. But how's your income and credit score like?

Most importantly, the debt ratio will be calculated considering gross monthly income and not the total income for 2 years.

Take Care

Guest 0.10 Dollars($)

In general, lenders do check out for 2 years of self-employment. But for those being self-employed for a year, they are likely to offer higher rates. I suggest you don't go for high rate loans initially; rather look for some other lenders compare the rates and then choose the one. And, as Sara said, if you list yourself on the loan doc as primary borrower, then your income and credit records will be the primary ones under observation and not your wife's records.

jtbone · Joined: 28 Feb 2008 Posts: 2 2.13 Dollars($)

Thanks for the help. I understand that my income and credit will be the primary ones under observation. Out credit is really pretty good. We are both around 650-685. I am mostly concerned about our monthly debt to income ratio. We have a car payment and a loan that takes up 27% of MY monthly income, but only 18.5% (conservatively) if we combine our income. When they told me her income would be considered a contributing factor to my income, I am assuming that they are going to consider part of her income as mine.
Thanks for the help, guys. Great forum!!

Jessica · Posted: Fri Feb 29, 2008 11:15 pm Post subject: RE: spouse income and fha loan

Hi Jeff,

The lender considers the gross monthly income of the primary borrower as well as his/her spouse. So, when your debt ratio is calculated, the gross monthly income will include yours primarily along with that of your spouse added together. So, yes it will be a contributing factor so that the total income comes out to be a good one to help you qualify for the loan.

Moreover, higher income will also contribute towards lowering the debt ratio. And to qualify for FHA loans, your total monthly debt payment should be within 41% of the gross monthly income. But I'd like to say something jeff, if you are going for FHA loans, have you considered the loan limit, I mean, the maximum that is available in your area? will it be enough for you?

Regards,

Jessica.

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