How big of an FHA Loan can I afford?

For an FHA loan, your monthly housing costs should not exceed 29% of your gross monthly income. Total housing costs include mortgage principal and interest, property taxes, and insurance. Those four terms are often lumped together, and referred to as PITI.

Example:

Monthly income X .29 = Maximum PITI
For a monthly income of $3,000, that means $3,000 x .29 = $870 Maximum PITI

Your total monthly costs, adding PITI and long term debt, should be no more than 41% of your gross monthly income. Long term debt includes such things as car loans and credit card balances.

Example:

Monthly income x .41 = Maximum Total Monthly Costs
For a monthly income of $3,000, that means $3,000 x .41 = $1230
$1,230 total - $870 PITI = $360 allowed for monthly long term debt

The ratios for an FHA loan are more lenient than for a typical conventional loan. For conventional home loans, PITI expense cannot usually exceed 26-28% of your gross monthly income, and total expense should be no more than 33-36%.