HUD HOC Reference Guide

When either or both of the permissible ratios of 31%/43% is/are exceeded, the lender is required to provide justification, in the "Remarks" section of the Loan Transmittal (HUD 92900.LT), as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval. For EEM or EEH loans, ratios of 33%/45% are considered permissible (Handbook 4155.1, Section 6.D).

Property taxes, as part of the total housing payment used in calculating the ratios must be accurate estimates. In new construction cases, property tax estimates must be based on the land AND the completed improvements, not just the land. For refinances, if the property has not been assessed since the borrower's purchase of the property, the expected supplemental taxes must also be considered.

The requirement for the loan needing compensating factors because of ratios exceeding the guidelines does not apply for loans rated acceptable by an Automated Underwriting System utilizing the FHA TOTAL Scorecard.

Please see: HUD Handbook 4155.1, Section 4.F