Compensating Factors for FHA Home Loans

When a borrower's payment or combined monthly debt payments is/are higher than the limits prescribe by HUD, the loan may be approved with compensating factors.  The following are several compensating factors to support borderline loan files:

• Energy efficient dwelling

• Less than 10% increase from old rent/house payment to the new housing expense

• A borrower's excellent savings ability (as shown by savings accounts, IRA's, etc.)

• 3 or months cash reserves (house payments after closing) that are not part of a gift

• Limited use of credit

• Borrower has potential for increased earnings

• Borrower has income that cannot be used as qualifying income

• Larger than minimum down payment

Good credit, steady income and residual income are not compensating factors.