What Are FHA Compensating Factors?

If you haven’t obtained a mortgage in a while or ever you need to know there are many moving parts to obtaining a mortgage. Things like credit score, your recurring debt, income and savings all factor into the process and if any of these is not in the normal range it may jeopardize obtaining approval. So, if any one of these is low and not good the other factors may be able to help the deficiency.

For example, the borrower who presents a low credit score but has a low debt to income ratio or a lot of savings or both may help. Most of the FHA mortgages go through an AUS or automated underwriting system. Though no one knows what goes into the algorithm for approval, lenders over time know what compensating factors will help when something else is out of whack. If the AUS doesn’t approve you your lender may be able to underwrite the loan manually to take a deeper look. Understand that all lenders may have slightly different underwriting and credit guidelines, so it is important to obtain a 2nd or 3rd opinion in certain circumstances.

Steady income, low debt to income ratio, good savings can be great compensating factors. While FHA loans require a minimum of 3.5% down, a borrower could put 5 or 10% down which also is viewed as a compensation factor as well.

The most important starting point to this process is speaking to a trusted mortgage professional such as the Home Loan Advisors at Hall Financial. They can answer all your questions and help guide you into the right FHA mortgage.