April 29, 2016
Recently we were asked if FHA home loans have either an income limit, or a minimum amount the borrower must earn per month/year in order to qualify.
FHA loan rules in HUD 4000.1 do not specify a maximum income. FHA loans are designed for those who want to purchase a home and want an alternative to conventional mortgages. FHA home loans are not created for a specific income bracket. Let’s examine the rules for income in HUD 4000.1:
“The Mortgagee must document the Borrowers income and employment history, verify the accuracy of the amounts of income being reported, and determine if the income can be considered as Effective Income…” “…The Mortgagee may only consider income if it is legally derived and, when required, properly reported as income on the Borrowers tax returns. Negative income must be subtracted from the Borrowers gross monthly income, and not treated as a recurring monthly liability unless otherwise noted.”
Nowhere in this section is there mention of an “earnings cap” for FHA mortgages.
The FHA loan program also does not specify a minimum income. Instead, the borrower must qualify for the loan financially by submitting employment and income data to the lender who will calculate the borrower’s debt to income ratio. The borrower must be able to afford the mortgage loan in addition to his or her existing financial obligations.
The debt to income ratio requirements are affected by FICO scores; if you need to know more about how your specific income and debts and how the lender will view them for loan approval, speak to a loan officer. Lender standards may also apply.
The debt to income ratio is basically a standard where the amount of verifiable income is compared to the amount of monthly debt. The borrower’s debts cannot exceed a certain percentage of the income. For example, some lenders may not approve a mortgage loan if the borrower has more than 43% of the monthly income going toward financial obligations (including a projected mortgage payment).
The monthly mortgage payment itself cannot exceed a certain percentage of the borrower’s monthly income. This percentage may vary depending on the lender.
In short while there is no minimum income amount listed for borrowers to qualify for an FHA mortgage loan, the borrower must be able to realistically afford the loan based on the lender’s calculations of verifiable income (not all income is considered verifiable-it must be judged as stable and likely to continue).
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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