Tuesday, June 8, 2021

In Oregon Counties, With or Without Compensating Factors, What Income Is Required to Purchase a Home with A FHA Loan?

I have constructed a new Excel estimator HERE and embedded below that shows the income required to qualify for an FHA loan, with and without compensating factors. (My prior post here explains more about compensating factors and FHA loans).

Included in the workbook is a worksheet that includes an inserted MS Word document with details about each of the compensating factors and a web link to access the entire HUD 4000.1 handbook in PDF format; the compensating factors section begins on PDF page 351. [Users likely will need MS Word or Word reader to view this worksheet].

The estimator starts with user inputs including
  • The county in which the home is located
  • The household size
  • The purchase price
  • The loan interest rate
  • The down payment percentage
  • The amount of reoccurring non-housing debt.
  • Monthly Property taxes, insurance and homeowners association fees (as a percentage of the purchase price).
The estimator returns, for four different scenarios:
  • The FHA mortgage limit for the county in which the applicant is purchasing the home (with an error message if the purchase price less down payment exceeds this limit).
  • The monthly and upfront FHA insurance costs.
  • The total mortgage amount with the annual FHA up front premium added.
  • The monthly principal and interest,
  • The tax and insurance amount, 
  • The PITI amount,
  • The monthly reoccurring debt amount,
  • The total monthly debt amount,
  • The income required to qualify for an FHA loan with or without compensating factors.
  • The ratio of the income required compared to the household sized adjusted HUD median family income for the county in which the applicant is purchasing the home.
  • The dollar difference between the income required for a FHA loan with NO compensating factors and the income required for each of the three compensating factor scenarios.
  • The percentage difference between the income required for a FHA loan with NO compensating factors and the income required for each of the three compensating factor scenarios.
  • NOTES: 1. You likely will need to scroll right to see all columns in the web browser; downloading the file may provide you with a better view of all columns. 2. Result cells are password protected to avoid inadvertent entries; input cells are not locked.

Default settings
The default settings are for Multnomah county (Portland metro area) with a purchase price of $500,000, a 4 person household, a 3.5% down payment, a 3% interest rate, property taxes, insurance, and HOA at 1.5% of the purchase price ($625), and recurring non housing debt of $300 a month. All of these defaults can be changed by the user. 

Default results:
  1. Without compensating factors the default applicant would need to have an income of $121% of the Portland metro household size adjusted median family income to qualify. That's $117,600.
  2. Scenario 2 would allow a family at 102% of the household sized adjusted Portland metro HUD median family income qualify for an FHA loan. That's $98.500--- 16%/$19,100 below the income required for a applicant who can't use any of the available compensating factors. 
  3. Scenarios 3 and 4 would allow a family at 94% of the household sized adjusted Portland metro HUD median family income qualify for an FHA loan. That's $91.100--- 23%/$26,500 below the income required for a applicant who can't use any of the available compensating factors. 
Caveats:
  1. The compensating factors used are shown in the HUD handbook as manual factors. Automated underwriting systems likely use these and other factors in making the underwriting decision recommendation. 
  2. These are permissible compensating factors. Lenders are free to NOT use these factors and to be more conservative in their underwriting decisions. 
  3. IF the FHA loan is for the Oregon state bond program there are additional income and property purchase limits that may change these results. 
Originally created and posted on the Oregon Housing Blog






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