November 4, 2013
A reader asks, “I have a question about the FHA 3.5 percent down program. I know my scores are all in the high six’s lowest 637 highest 677 , I was told that I qualify for the loan but when push came to shove, I was told I needed my net income to be almost 4 times what i make now. What is or are the financial requirements to qualify for the program? Also, I am self employed and have been for over 5 years. I presume the rules vary from lender to lender, state to state, etc…I need to know if this lender purposely made up this story just to ‘show me the door’ so to speak.”
We can’t speak for a lender’s intentions, so we’ll skip the last part of this question about “showing the door”, but when it comes to the FHA loan program and financial requirements there are a few myths to dispel in this area.
One of the biggest? That the FHA has a minimum income requirement. This is not true. There is no set dollar amount an FHA loan applicant needs to make in order to qualify for an FHA mortgage loan. A related myth is that a borrower can make “too much” to qualify for an FHA loan. This is also NOT TRUE.
The lender is responsible for determining if the borrower can afford the loan given the amount of current financial obligations–does the addition of the mortgage payment push the borrower’s debt to income ratio too high?
The financial requirements for an FHA loan include having a debt-to-income ratio that is within a certain limit. Borrowers who have bills and financial obligations that take up a percentage of the income that is too great may need compensating factors in order to qualify, or may be rejected for the loan depending on that percentage.
The debt-to-income ratio requirements may vary depending on the FHA loan applicant’s circumstances including whether the borrower has sufficient or insufficient credit, according to the rules printed in HUD 4155.1. It’s best to discuss the debt-to-income issue with a lender for more specific answers.
The reader’s question mentions self-employment. This is an additional factor that may affect an application since self-employment income requires additional verification, paperwork, etc. The borrower’s income and expenses are more complex in these cases, and there may be additional factors at work not mentioned in the question.
FHA loans are not processed on a one-size-fits-all basis. Your specific circumstances going into the loan processes may be unique and the loan application is handled individually for income verification and other factors. Borrowers with questions about issues like these should discuss their individual needs with a lender for best results.
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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