May 2, 2019
Some borrowers confuse the features of the FHA home loan program with other government-backed loans, but when it comes to the question of income limits, FHA borrowers do not need to worry-there are NO income limits for FHA home loans.
Those who misunderstand the FHA loan program as a need-based home loan option are likely confusing FHA mortgages with USDA loans, which are need-based and DO have income limits. Real estate purchases with FHA loans are not the same as their USDA counterparts.
FHA Mortgages Are Not Just For First-Time Home Buyers
We repeat: FHA mortgages are not only for first-time home buyers, and they are not restricted to those who may fall into a lower income category. Any financially qualified borrower can be approved for an FHA mortgage as long as the lender decides they are a good credit risk.
USDA loans, on the other hand. have a maximum income cap per household (not per borrower) and feature other restrictions not present in FHA mortgages.
FHA Loans Have Debt Ratio Rules
What’s more important than the amount you make? The amount of debt you have each month that cuts into that income. FHA loan rules include requirements for a borrower’s debt-to-income ratio. You should work on getting your debt ratio down to 40% or less for best results.
The debt ratio question is a very important one-the lender is tasked with making sure you can actually afford your home loan and loan approval can be based on the amount of debt you carry versus your income the same as with FICO score numbers.
The better your numbers are in all cases, the closer you get to home loan approval
There is hope for borrowers who have numbers-FICO scores and debt ratios–that push the limits of what the lender will approve. If you are willing to make a larger down payment or can show other compensating factors (cash reserves, investments, etc.) you may find the lender has more flexibility.
The more money you put on your down payment, the more you save over the lifetime of the mortgage, so paying more up front is not just an expense to deal with, the benefits of doing so come over time thanks to paying less in interest on the entire loan principal.
Remember that the lender has to decide if you can afford the loan; working on your credit and debt ratios as early as possible gives you a bigger advantage when it’s time to apply for the mortgage.
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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