July 1, 2013
A reader asks, “What is the current interest rate for a first time home buyer and what is the income level to qualify?”
The short answer to the first part of this reader question is that there is no specific interest rate set for “first time home buyers” when it comes to FHA home loans.
The interest rate on an FHA mortgage is negotiated between the borrower and the lender. While some institutions may have a first-time home buyer program, the FHA does not set the rates on FHA loans nor does it regulate them beyond general requirements to be typical for the housing market the loan is offered in.
FHA loan interest rates can change depending on the nature of the markets that affect mortgage rates. Rates can change frequently so even if the FHA DID offer a first time homebuyer interest rate, it would be difficult to quote a general interest rate here as a reply to a ready question–it’s best to discuss rates with a lender instead.
When it comes to the second part of the reader question, the basic answer is that there is no “minimum income” requirement. Instead, the FHA loan program requires lenders to examine a borrower’s income and compare it to existing financial obligations the borrower may have and see if the applicant can afford the loan based on that data plus the amount of the monthly mortgage payment. FHA loan rules as described in HUD 4155.1 Chapter One Section A explains:
“FHA’s general credit policy requirements for underwriting a mortgage involve
• considering the type of income the borrower needs in order to qualify
• analyzing the borrower’s liabilities to determine creditworthiness, and
• reviewing ratios, including debt-to-income, and compensating factors.”
The lender verifies the borrower’s income and ability to pay not just based on the amount of current income, but also based on other documentation including credit reports. Chapter One Section B of HUD 4155.1 also requires the lender to examine tax records where appropriate.
“The lender must obtain
- federal income tax returns for the most recent two years, both individual and business, including all applicable schedules, for self-employed borrowers, and
- individual federal tax returns for commissioned individuals.”
For more information on these issues, speak to a lender or contact the FHA directly.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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