source:
  type: guide
  id: hud-4000-1-ii-d-monthly-expense-analysis
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Monthly
    Expense Analysis (04/10/2025)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Monthly
    Expense Analysis (04/10/2025).
  coverage_tier: operative
obligations:
- id: hud-4000-1-ii-d-monthly-expense-analysis-full
  canonical_id: hud-4000-1-ii-d-monthly-expense-analysis-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Monthly
    Expense Analysis (04/10/2025)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Monthly
      Expense Analysis (04/10/2025)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'd. Monthly Expense Analysis (04/10/2025) Monthly Expense Analysis
      refers to the analysis of the Borrower’s monthly expenses required to calculate
      Residual Income. i. Monthly Expenses The Mortgagee must determine the Borrower’s
      monthly expenses for the following: • federal and state income taxes; • Federal
      Insurance Contributions Act (FICA); • Property Charges for the subject Property;
      • estimated utility and maintenance expenses; • installment account payments;
      • any other owned property mortgage obligations (debt and Property Charges);
      • revolving credit account payments; • Alimony and Child Support payments; •
      Judgments under payment plans against the Borrower; and • payments required
      under any bankruptcy plans. Where the Borrower benefits from federal, state,
      or local benefit programs that reduce Borrower expenses, the reduced amounts
      may be used to calculate monthly expenses, provided that the Mortgagee complies
      with the documentation requirements of Government Assistance Non-Cash Benefits
      Income. ii. Liens Paid Off at Closing When a lien against the Property is paid
      off at closing, the monthly payment associated with that lien is not included
      in the Borrower’s monthly expenses. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial
      Assessment of the Borrower Handbook 4000.1 630 Last Revised: 11/26/2025 iii.
      General Liabilities and Debts (A) Standard The Mortgagee must determine the
      Borrower’s monthly expenses by reviewing all debts listed on the credit report,
      Fannie Mae Form 1009, part VI of the Uniform Residential Loan Application (URLA),
      and other required documentation. All applicable monthly expenses must be considered
      in the monthly expense analysis. Closed-end debts do not have to be included
      if they will be paid off within 10 months and the cumulative payments of all
      such debts are less than or equal to 5 percent of the Borrower’s gross monthly
      income. The Borrower may not pay down the balance in order to meet the 10-month
      requirement. Accounts for which the Borrower is an authorized user must be included
      in a Borrower’s monthly expenses unless the Mortgagee can document that the
      primary account holder has made all required payments on the account for the
      previous 12 months. If less than three payments have been required on the account
      in the previous 12 months, the payment amount must be included in the Borrower’s
      monthly expenses. Negative income must be subtracted from the Borrower’s gross
      monthly income, and not treated as a recurring monthly liability unless otherwise
      noted. Loans secured against deposited funds, where repayment may be obtained
      through extinguishing the asset and these funds are not included in calculating
      the Borrower’s assets, are not required to be included in monthly expenses.
      (B) Required Documentation The Mortgagee must document that the funds used to
      pay off debts prior to closing came from an acceptable source and the Borrower
      did not incur new debts that were not included in the monthly expenses. (C)
      Undisclosed Debt and Inquiries (1) Standard When a debt or obligation is revealed
      during the application process that was not listed on the mortgage application
      and/or credit report, the Mortgagee must: • verify the actual monthly payment
      amount; • include the payment amount in the agreement in the Borrower’s monthly
      liabilities and debt; and • determine that any unsecured funds borrowed were
      not/will not be used for the Borrower’s settlement requirements. II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse
      Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1
      631 Last Revised: 11/26/2025 The Mortgagee must obtain a written explanation
      from the Borrower for all inquiries shown on the credit report that were made
      in the last 90 Days. (2) Required Documentation The Mortgagee must document
      all undisclosed debt and support for its analysis of the Borrower’s debt. (D)
      Federal Debt (1) Definition Federal Debt refers to debt owed to the federal
      government for which regular payments are being made. (2) Standard The amount
      of the required payment must be included in the calculation of the Borrower’s
      monthly expenses. (3) Required Documentation The Mortgagee must include documentation
      from the federal agency evidencing the repayment agreement and verification
      of payments made, if applicable. (E) Alimony, Child Support, and Maintenance
      (1) Definition Alimony, Child Support, and Maintenance are court-ordered or
      otherwise agreed upon payments. (2) Standard For Alimony, if the Borrower’s
      income was not reduced by the amount of the monthly alimony obligation in the
      Mortgagee’s calculation of the Borrower’s gross income, the Mortgagee must verify
      and include the monthly obligation in its calculation of the Borrower’s monthly
      expenses. Child Support and Maintenance are to be treated as a recurring liability
      and the Mortgagee must include the monthly obligation in the Borrower’s liabilities
      and monthly expenses. (3) Required Documentation The Mortgagee must obtain the
      official signed divorce decree, separation agreement, maintenance agreement,
      or other legal order. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title
      II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment
      of the Borrower Handbook 4000.1 632 Last Revised: 11/26/2025 The Mortgagee must
      also obtain the Borrower’s pay stubs covering no less than 28 consecutive Days
      to verify whether the Borrower is subject to any order of garnishment relating
      to the Alimony, Child Support, and Maintenance. (4) Calculation of Monthly Obligation
      The Mortgagee must calculate the Borrower’s monthly obligation from the greater
      of: • the amount shown on the most recent decree or agreement establishing the
      Borrower’s payment obligation; or • the monthly amount of the garnishment. (F)
      Deferred Obligations (1) Definition Deferred Obligations (excluding Student
      Loans) refer to liabilities that have been incurred but where payment is deferred
      or has not yet commenced, including accounts in forbearance. (2) Standard The
      Mortgagee must verify and include deferred obligations in the calculation of
      the Borrower’s monthly expenses. (3) Required Documentation The Mortgagee must
      obtain written documentation of the deferral of the liability from the creditor
      and evidence of the outstanding balance and terms of the deferred liability.
      The Mortgagee must obtain evidence of the actual monthly payment obligation,
      if available. (4) Calculation of Monthly Obligation The Mortgagee must use the
      actual monthly payment to be paid on a deferred liability, whenever available.
      If the actual monthly payment is not available for installment debt, the Mortgagee
      must utilize the terms of the debt or 5 percent of the outstanding balance to
      establish the monthly payment. (G) Student Loans (1) Definition Student Loan
      refers to liabilities incurred for educational purposes. II. ORIGINATION THROUGH
      POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages
      5. Performing the Financial Assessment of the Borrower Handbook 4000.1 633 Last
      Revised: 11/26/2025 (2) Standard The Mortgagee must include all Student Loans
      in the Borrower’s monthly expenses, regardless of the payment type or status
      of payments. (3) Required Documentation If the payment used for the monthly
      obligation is less than the monthly payment reported on the Borrower’s credit
      report, the Mortgagee must obtain written documentation of the actual monthly
      payment, the payment status, and evidence of the outstanding balance and terms
      from the creditor or student loan servicer. The Mortgagee may exclude the payment
      amount from the monthly debt calculation where written documentation from the
      student loan program, creditor, or student loan servicer indicates that the
      loan balance has been forgiven, canceled, discharged, or otherwise paid in full.
      (4) Calculation of Monthly Obligation For outstanding Student Loans, regardless
      of the payment status, the Mortgagee must use: • the payment amount reported
      on the credit report or the actual documented payment, when the payment amount
      is above zero; or • 0.5 percent of the outstanding loan balance, when the monthly
      payment reported on the Borrower’s credit report is zero. Exception Where a
      student loan payment has been suspended in accordance with COVID-19 emergency
      relief, the Mortgagee may use the payment amount reported on the credit report
      or the actual documented payment prior to suspension, when that payment amount
      is above $0. (H) Installment Loans (1) Definition Installment Loans (excluding
      Student Loans) refer to loans, not secured by real estate, that require the
      periodic payment of Principal and Interest (P&I). A loan secured by an interest
      in a timeshare must be considered an Installment Loan. (2) Standard The Mortgagee
      must include the monthly payment shown on the credit report, loan agreement,
      or payment statement to calculate the Borrower’s monthly expenses. II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse
      Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1
      634 Last Revised: 11/26/2025 If the credit report does not include a monthly
      payment for the loan, the Mortgagee must use the amount of the monthly payment
      shown in the loan agreement or payment statement. (3) Required Documentation
      If the monthly payment shown on the credit report is utilized to calculate the
      monthly expenses, no further documentation is required. If the credit report
      does not include a monthly payment for the loan, or the payment reported on
      the credit report is greater than the payment on the loan agreement or payment
      statement, the Mortgagee must use the loan agreement or payment statement to
      document the amount of the monthly payment. If the credit report, loan agreement,
      or payment statement shows a deferred payment arrangement for an Installment
      Loan, refer to the Deferred Obligations section. (I) Revolving Charge Accounts
      (1) Definition A Revolving Charge Account refers to a credit arrangement that
      requires the Borrower to make periodic payments but does not require full repayment
      by a specified point of time. (2) Standard The Mortgagee must include the monthly
      payment shown on the credit report for the Revolving Charge Account. Where the
      credit report does not include a monthly payment for the account, the Mortgagee
      must use the payment shown on the current account statement or 5 percent of
      the outstanding balance. (3) Required Documentation The Mortgagee must use the
      credit report to document the terms, balance, and payment amount on the account,
      if available. Where the credit report does not reflect the necessary information
      on the charge account, the Mortgagee must obtain a copy of the most recent charge
      account statement or use 5 percent of the outstanding balance to document the
      monthly payment. (J) 30-Day Accounts (1) Definition A 30-Day Account refers
      to a credit arrangement that requires the Borrower to pay off the outstanding
      balance on the account every month. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial
      Assessment of the Borrower Handbook 4000.1 635 Last Revised: 11/26/2025 (2)
      Standard The Mortgagee must verify the Borrower paid the outstanding balance
      in full on every 30-Day Account each month for the past 12 months. 30-Day Accounts
      that are paid monthly are not included in the Borrower’s monthly expenses. If
      the credit report reflects any late payments in the last 12 months, the Mortgagee
      must utilize 5 percent of the outstanding balance as the Borrower’s monthly
      debt to be included in the monthly expenses. (3) Required Documentation The
      Mortgagee must use the credit report to document that the Borrower has paid
      the balance on the account monthly for the previous 12 months. The Mortgagee
      must use the credit report to document the balance and must document that funds
      are available to pay off the balance. (K) Business Debt in Borrower’s Name (1)
      Definition Business Debt in Borrower’s Name refers to liabilities reported on
      the Borrower’s personal credit report, but payment for the debt is attributed
      to the Borrower’s business. (2) Standard When business debt is reported on the
      Borrower’s personal credit report, the debt must be included in the monthly
      expenses, unless the Mortgagee can document that the debt is being paid by the
      Borrower’s business, and the debt was considered in the cash flow analysis of
      the Borrower’s business. The debt is considered in the cash flow analysis where
      the Borrower’s business Tax Returns reflect a business expense related to the
      obligation, equal to or greater than the amount of payments documented as paid
      out of company funds. Where the Borrower’s business Tax Returns show an interest
      expense related to the obligation, only the interest portion of the debt is
      considered in the cash flow analysis. (3) Required Documentation When a self-employed
      Borrower states debt appearing on their personal credit report is being paid
      by their business, the Mortgagee must obtain documentation that the debt is
      paid out of company funds and that the debt was considered in the cash flow
      analysis of the Borrower’s business. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial
      Assessment of the Borrower Handbook 4000.1 636 Last Revised: 11/26/2025 (L)
      Disputed Derogatory Credit Accounts (1) Definition Disputed Derogatory Credit
      Accounts refer to disputed Charge Off Accounts, disputed collection accounts,
      and disputed accounts with late payments in the last 24 months. (2) Standard
      If the Borrower has $1,000 or more collectively in Disputed Derogatory Credit
      Accounts, the Mortgagee must include a monthly payment in the Borrower’s monthly
      expenses calculation. The following items are excluded from the cumulative balance:
      • disputed medical accounts; and • disputed derogatory credit resulting from
      identity theft, credit card theft, or unauthorized use. Disputed Derogatory
      Credit Accounts of an NBS in a community property state are not included in
      the cumulative balance. (M) Non-derogatory Disputed Account and Disputed Accounts
      Not Indicated on the Credit Report (1) Definition Non-derogatory Disputed Accounts
      include the following types of accounts: • disputed accounts with zero balance;
      • disputed accounts with late payments aged 24 months or greater; or • disputed
      accounts that are current and paid as agreed. (2) Standard If a Borrower is
      disputing non-derogatory accounts, or is disputing accounts which are not indicated
      on the credit report as being disputed, the Mortgagee must analyze the effect
      of the disputed accounts on the Borrower’s ability to repay the loan. If the
      dispute results in the Borrower’s monthly debt payments utilized in computing
      the monthly expenses being less than the amount indicated on the credit report,
      the Borrower must provide documentation of the lower payments. (N) Contingent
      Liabilities (1) Definition A Contingent Liability is a liability that may result
      in the obligation to repay only where a specific event occurs. For example,
      a contingent liability exists when an II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial
      Assessment of the Borrower Handbook 4000.1 637 Last Revised: 11/26/2025 individual
      can be held responsible for the repayment of a debt if another legally obligated
      party defaults on the payment. Contingent liabilities may include cosigner liabilities
      and liabilities resulting from a mortgage assumption without release of liability.
      (2) Standard The Mortgagee must include monthly payments on contingent liabilities
      in the calculation of the Borrower’s monthly expenses unless the Mortgagee verifies
      that there is no possibility that the debt holder will pursue debt collection
      against the Borrower, should the other party default or the other legally obligated
      party has made 12 months of timely payments. When a contingent liability is
      created by a divorce decree or other court order, evidence that the other legally
      obligated party has made 12 months of timely payments is not required. (3) Required
      Documentation (a) Mortgage Assumptions The Mortgagee must obtain the agreement
      creating the contingent liability or assumption agreement and deed showing transfer
      of title out of the Borrower’s name. (b) Cosigned Liabilities If the cosigned
      liability is not included in the monthly obligation, the Mortgagee must obtain
      documentation to evidence that the other party to the debt has been making regular
      on-time payments during the previous 12 months. (c) Court-Ordered Divorce Decree
      or Other Court Order The Mortgagee must obtain a copy of the divorce decree
      or other court order ordering the spouse or other legally obligated party to
      make payments. (4) Calculation of Monthly Obligation The Mortgagee must calculate
      the monthly payment on the contingent liability based on the terms of the agreement
      creating the contingent liability. (O) Collection Accounts (1) Definition A
      Collection Account refers to a Borrower’s loan or debt that has been submitted
      to a collection agency by a creditor. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial
      Assessment of the Borrower Handbook 4000.1 638 Last Revised: 11/26/2025 (2)
      Standard If the credit reports used in the analysis show cumulative outstanding
      collection account balances of $2,000 or greater, the Mortgagee must: • verify
      that the debt is paid in full at the time of or prior to settlement using an
      acceptable source of funds; • verify that the Borrower has made payment arrangements
      with the creditor; or • if a payment arrangement is not available, calculate
      the monthly payment using 5 percent of the outstanding balance of each collection
      and include the monthly payment in the Borrower’s monthly expenses. (3) Required
      Documentation The Mortgagee must provide the following documentation: • evidence
      of payment in full, if paid prior to settlement; • the payoff statement, if
      paid at settlement; or • the payment arrangement with creditor, if not paid
      prior to or at settlement. If the Mortgagee uses 5 percent of the outstanding
      balance, no documentation is required. (P) Charge Off Accounts (1) Definition
      Charge Off Account refers to a Borrower’s loan or debt that has been written
      off by the creditor. (2) Standard Charge Off Accounts do not need to be included
      in the Borrower’s monthly expenses. (Q) Obligations Not Considered Debt Obligations
      not considered debt include: • medical collections; • automatic deductions from
      savings, when not associated with another type of obligation; • retirement contributions,
      such as 401(k) accounts; • collateralized loans secured by depository accounts;
      • child care; • commuting costs; • union dues; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial
      Assessment of the Borrower Handbook 4000.1 639 Last Revised: 11/26/2025 • insurance,
      other than property insurance; • open accounts with zero balances; and • voluntary
      deductions, when not associated with another type of obligation. (R) Private
      Savings Clubs (1) Definition Private Savings Club refers to a non-traditional
      method of saving by making deposits into a member-managed resource pool. (2)
      Standard If the Borrower is obligated to continue making ongoing contributions
      under the pooled savings agreement, this obligation must be counted in the Borrowers’
      monthly expenses. The Mortgagee must verify and document the establishment and
      duration of the Borrower’s membership in the club and the amount of the Borrower’s
      required contribution to the club. (3) Required Documentation The Mortgagee
      must also obtain the club’s account ledgers and receipts, and verification from
      the club treasurer that the club is still active. (S) Federal, State, and Local
      Income Taxes (1) Definition Federal, State, and Local Income Taxes refer to
      taxes imposed by the federal, state, and local governments on the Borrower’s
      Effective Income. (2) Standard Federal, state, and local income taxes must be
      included in monthly expenses. (3) Required Documentation If available, Mortgagees
      must use federal, state, and local tax returns from the most recent tax year
      to document federal, state, and local income taxes. If tax returns are not available,
      Mortgagees may rely upon current pay stubs and tax tables. II. ORIGINATION THROUGH
      POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages
      5. Performing the Financial Assessment of the Borrower Handbook 4000.1 640 Last
      Revised: 11/26/2025 (T) Utilities and Maintenance Expenses Mortgagees must rely
      on the formula established by Department of Veterans Affairs (VA) for estimated
      maintenance and utilities in all states. Mortgagees should multiply the living
      area of the Property (square feet) by $0.14. Mortgagees must use the figure
      for square feet from the Improvements section on page 1 of the appraisal under
      Square Feet of Gross Living Area Above Grade. iv. Property Charges (A) Property
      Taxes Mortgagees must document the amount of current year property taxes, or
      personal property taxes for Manufactured Homes not taxed as real estate, due
      from all taxing authorities. Verification of real estate property taxes may
      be in the form of written statements or online printouts from the taxing authorities,
      or copies of bills. Verification of personal property taxes for Manufactured
      Homes not taxed as real estate may be in the form of online printouts from the
      taxing authority or through copies of bills and canceled checks or other equivalent
      proof of payment obtained from the Borrower or taxing authority. If the current
      year’s property tax bill is not available, Mortgagees shall calculate monthly
      expenses based on 1.04 percent of the prior year’s tax bill. Where property
      taxes are deferred or waived, the amount of the property taxes may be excluded
      from monthly expenses. (B) Hazard Insurance Mortgagees must obtain the current
      year’s declaration sheet of the insurance policy. If the current year’s declaration
      sheet is not available, Mortgagees shall calculate monthly expenses based on
      1.04 percent of the prior year’s premium. Where no Hazard Insurance policy was
      previously in place, Mortgagees shall base the cost of Hazard Insurance upon
      the insurance quote provided to the Borrower for the cost of Hazard Insurance
      under the HECM. (C) Flood Insurance Mortgagees must obtain the current year’s
      declaration sheet of the insurance policy. If the current year’s declaration
      sheet is not available, Mortgagees shall calculate monthly expenses based on
      1.04 percent of the prior year’s premium. Where no Flood Insurance policy was
      previously in place, Mortgagees shall base the cost of Flood Insurance upon
      the insurance quote provided to the Borrower for the cost of Flood Insurance
      under the HECM. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II
      Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment
      of the Borrower Handbook 4000.1 641 Last Revised: 11/26/2025 (D) Condominium,
      PUD, and HOA Fees Mortgagees must obtain from the appraisal, or from a written
      statement from the association or its management agent, documentation on the
      amount of the monthly fees. (E) Ground Rents Mortgagees must obtain from the
      deed, the lessor, or its management agent a written statement documenting the
      amount of the ground rent payment. (F) Other Assessments Mortgagees must obtain
      from the party levying the assessment or its management agent a written statement
      documenting the amount of any other assessments.'
  judgment: false
