Wife's self employed income "compensating factor" on my FHA loan?

[Jeffrey B]

My wife and I have sold our home as of this July, and will be ready to move at the time. She has recently become an independent hair stylist (same industry job for 3 years). We have been told that her income will not count, and they will look only at mine, but consider hers as a "compensating factor". We really need her income to get our ratios where they need to be to afford the home we are looking for. How do these "compensating factors" work?
We have good credit, and have about 5% saved up.
We have between 650-685 scores.