June 21, 2017
How much or how little can you earn and still qualify for an FHA loan? Do you know what the FHA loan income requirements are for the type of mortgage loan you seek?
The truth is, the FHA home loan program does not specify a minimum (or maximum) dollar amount necessary to qualify for an FHA home loan or FHA refinance loan. Instead, the lender is required to make sure you qualify with FICO scores, credit history, and an acceptable debt-to-income ratio.
FHA Debt To Income Ratio
There are two ways your participating FHA lender will review your income compared to your financial obligations in order to qualify you for an FHA mortgage. The first is to review the amount of verifiable income you bring in and compare it to the amount of monthly debt you pay out each month. Some types of financial obligations are exempt from this review including taxes, certain types of qualifying business debt, etc.
The second calculation is made with all that in mind, but adding a projected monthly mortgage payment to see how that affects the debt-to-income ratio. If more than 40% of your monthly income is taken up by pre-mortgage expenses, your lender may want to work with you to see what “compensating factors” could count in your favor in spite of having a higher percentage of your income taken up by monthly bills.
FHA Loan Compensating Factors
The kinds of compensating factors that may (or may not) be required in certain cases where a high debt-to-income ratio apply depend on a few variables. The borrower’s FICO score, for example, may dictated whether a compensating factor is even necessary.
Those who have FICO scores between 500 and 579 may not be permitted to exceed certain debt ratios even with the presence of compensating factors. Other situations may only apply if the borrower has non-traditional credit or no credit. Borrowers who need to discuss compensating factors with the lender will find a higher down payment, substantial cash reserves, and/or residual income are often helpful in this area.
FHA Loan Income Myths
As mentioned above, FHA loan rules do not specify a minimum income, but instead required the lender to run the numbers to see if the applicant can actually afford the monthly FHA mortgage payment including principal and interest, mortgage insurance requirements, etc.
But there is a myth about FHA loans involving the impression that a borrower can earn “too much” money to qualify for an FHA mortgage loan or refinance loan.
The idea behind this myth about FHA loans? That the FHA loan program is aimed specifically at either first-time home buyers only, economically disadvantaged borrowers, or some combination of the two. The fact is that any applicant who financially qualifies as mentioned above could succeed in getting an FHA mortgage regardless of status as a first time buyer or the actual dollar amount of the income earned.
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.
Browse by Date: