October 31, 2017
What are the income requirements for an FHA loan? Some aren’t sure if they earn enough to qualify for an FHA mortgage, and others are worried that they might earn “too much” to qualify, mistakenly believing that FHA loans are only for people within a certain income bracket. What’s the reality?
FHA Loans Are For Anyone Who Qualifies
There is no minimum income requirement for an FHA mortgage, and there is no upper limit or income “ceiling”. FHA loans are not targeted for any one income bracket. It is true that FHA loans are designed with more lenient FICO score minimums in mind, but that has nothing to do with the amount of your annual income or how you earn that income.
Basic FHA Loan Income Requirements
There ARE FHA loan standards for income, but they do not address the amount of your salary. Instead, the lender wants to know that your income is dependable and that it will continue.
This applies to all different kinds of work from seasonal employment (your lender will want to know that the seasonal work is something you do each season rather than a one-off job) to freelance employment (the lender will want to see that your freelance work is dependable from year to year) to commissioned and salaried jobs.
Tax returns, business plans (for self-employed applicants), history of commission payments and other documentation may be required on a case-by-case basis depending on the nature of your work.
How Much Do I Need To Earn To Qualify For An FHA Mortgage?
Believe it or not, it’s not a case of how much you earn, but more about whether you can afford the mortgage payments given your current income compared to your outgoing debt. The lender will measure your debt-to-income ratio to see if you can realistically afford the mortgage based on the ratio.
What Is The Required Debt-To-Income Ratio (DTI)?
The short answer is that it depends on your credit score-not because the FICO score issue here will make or break the loan application process, but rather to determine if compensating factors are required to approve the loan.
In general (and lender standards will also apply) FHA loan minimums require those eligible for maximum financing have no more than 43% of their monthly income be taken up by outgoing financial obligations including the projected mortgage loan payment.
A percentage higher than that, within a certain range, would require compensating factors such as a bigger down payment, substantial reserves of cash, etc. Again, lender standards will apply.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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