Are the FHA’s Compensating Factors Your Key to Home Ownership?

Nobody’s perfect. If only perfect people could get approved for a mortgage, none of us would own a home. If you have a less-than-ideal credit history or if you have missed a few critical payments in the past, using compensating factors to qualify for an FHA mortgage in Pennsylvania might be your key to home ownership.

What Are Compensating Factors?

Compensating factors are a proverbial life preserver for people who have a tough time getting mortgage approval. They are positive aspects of your financial situation that you can use to offset the negatives. It might sound like a long shot, but at MortgageDepot, we deal with these situations daily.

Compensating factors are required when a mortgage approval needs to go through a manual underwriting process. If your mortgage application is likely to be denied through an automated system, you’ll need a professional underwriter to analyze your finances to determine if you can take on the financial responsibility of a mortgage.

Compensating Factors Accepted by the FHA

If you are applying for an FHA loan, we might need to take a closer look at your compensating factors to get the job done. Here is a list of compensating factors that the FHA accepts:

• Cash reserves
  A one- or two-unit property requires three months of PITI, while a three- or four-unit property requires six months of PITI. Gifted funds don’t count as cash reserves.
• Low payment shock
  If your new mortgage payment does not exceed your current housing payment by more than 5% or $100 (whichever is less) and you haven’t been more than 30 days late on a housing payment in the past 12 months, you might have a compensating factor on your side.
• No discretionary debt
  If your only open debt is your housing payment, this is a compensating factor.
• Residual income
  If you have excess cash at the end of the month, it might help you get an FHA loan. Here are the minimum residual income amounts that the FHA needs to see to use this as a compensating factor:
  •One-person household: $450 plus utility expenses
  •Two-person household: $755 plus utility expenses
  •Three-person household: $909 plus utility expenses
  •Four-person household: $1,025 plus utility expenses

Contact Us Today!

If you are seeking a mortgage in Pennsylvania, MortgageDepot can help! Talk to one of our experienced loan officers today to learn how you can qualify for an FHA loan.

Contact us today or email us here for more information.