April 29, 2014
A reader asks, “I have low income but sufficient to qualify, credit score qualification and a low amount of debt. I also have significant savings (over $150,000) in a money market acct from a property settlement agreement. Does my large savings disqualify me? Is there a limit to the amount of assets one can own and still qualify?”
This is a common misconception about FHA home loans–the notion that FHA loans are only for first-time home buyers, or only for those who might be considered at an economic disadvantage of some kind. The truth about FHA loans is quite different.
FHA mortgages have no minimum income requirement. Instead they are approved based on a borrower’s FICO scores, debt-to-income ratio and other financial factors. There is also no maximum income limit. Borrowers can apply for an FHA loan as long as they financially qualify and aren’t otherwise barred from the FHA loan program or sitting out a required waiting period due to a bankruptcy or foreclosure.
There are cases where a borrower who is considered “marginal” when it comes to FICO scores or other financial qualifications may have to bring “compensating factors” to the bargaining table.
Those compensating factors could include a larger than normal down payment, substantial cash reserves or other assets that could be used to justify the loan. But in typical FHA loan circumstances this would not be required.
In the case of this reader question if the borrower’s debt to income ratio is low and the income is sufficient to help pay the mortgage loan, the compensating factor of substantial cash reserves may not be required but this is a call the lender has to make–it may take some shopping around for a financial institution that can work with the borrower’s circumstances, but some lenders may view the situation favorably assuming all other qualifying issues are addressed.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
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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