September 3, 2013
One common misconception about FHA home loans is that there’s a set, minimum income amount a borrower must have in order to qualify for the home loan. This is not true. The FHA does not set minimum income requirements or have rules about how much a borrower can make before he or she is no longer eligible to apply for an FHA mortgage.
In short, the actual dollar amount of your income doesn’t matter. What does is whether you can afford the loan based on the amount of debt you have versus the amount of money you bring in every month. Your lender is required to calculate your debt to income ratio to make sure you can afford the FHA loan along with all your other financial obligations. Here’s an example as cited in HUD 4155.1:
“Debt payments such as a student loan or balloon note scheduled to begin or come due within 12 months of the mortgage loan closing must be included by the lender as anticipated monthly obligations during the underwriting analysis.” FHA loan rules add, “Debt payments do not have to be classified as projected obligations if the borrower provides written evidence that the debt will be deferred to a period outside the 12-month timeframe.”
Your monthly scheduled payments factor into your debt to income ratio. But do ALL your payments count? According to the FHA loan rules specified in HUD 4155.1. the answer is “not always”. For example, in Chapter Four Section C of HUD 4155.1, we find the following under the heading, “Borrower Liabilities: Projected Obligations and Obligations Not Considered Debt”. It says:
“Obligations not considered debt, and therefore not subtracted from gross income, include
- Federal, state, and local taxes
- Federal Insurance Contributions Act (FICA) or other retirement contributions, such as 401(k) accounts (including repayment of debt secured by these funds)
- commuting costs
- union dues
- open accounts with zero balances
- automatic deductions to savings accounts
- child care
- voluntary deductions”
If you are not sure whether one or more of your monthly financial obligations falls into this category, check with your loan officer to find out more.
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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