Final answer:
The total-debt ratio for an FHA loan, including PITI, MIP, and recurring expenses, typically may not exceed 43% of a borrower's monthly gross income to ensure responsible borrowing and avoid financial strain.
Step-by-step explanation:
On an FHA loan, the total-debt ratio, which includes the PITI (principal, interest, taxes, and insurance), MIP (mortgage insurance premium), and recurring expenses (such as installment accounts with 10 or more months remaining, all revolving accounts, and child support payments), usually may not exceed 43% of monthly gross income.
Understanding the limits on the total-debt ratio is key to ensuring responsible homeownership and avoiding financial strain from overextending credit. This is especially important with varied loan terms, such as adjustable-rate mortgages, which can lead to increased repayments over time if interest rates rise. Responsible borrowing involves knowing one's financial limitations and recognizing that although lower down payments can be appealing, they typically require additional costs such as mortgage insurance.