November 22, 2010
“How much income do I need in order to qualify for an FHA home loan?” That is one of the most popular questions many first time home buyers ask about getting an FHA mortgage.
The answer often comes as a surprise. The FHA has no minimum income requirement–there is no dollar amount listed as the baseline for which FHA loans are approved. What the FHA does require is a history of steady income for at least three years. That FHA requirement should not be misinterpreted–it does not establish a minimum length of employment at any one company. It is intended to set a minimums for steady income rather than attempt to gauge employability or longevity at any one firm.
FHA income requirements are often misinterpreted in other ways. Some wrongly assume that some types of employment, however dependable, might not count because of the nature of the work. Seasonal work, for example, might pay over one part of the year only. Does it still qualify? If you can show the FHA that the income is steady and dependable–in spite of being non-traditional–it still works for an FHA loan application.
For the purposes of applying for the loan, steady income is more important than large income.
Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family all qualify as income sources. Part-time pay, overtime, and bonus pay also count as long as they are steady. Special savings plans-such as those set up by a church or community association – qualify, too. Income type is not as important as income steadiness with the FHA.
Some don’t realize that income sources including disability payments, Social Security pay, child support or alimony, even part-time work or overtime pay all count when applying for an FHA mortgage.
Bonuses may also be used, but in the case of overtime and bonus pay, FHA rules are clear. “An earnings trend also must be established and documented for overtime and bonus income. If either type shows a continual decline, the lender must provide a sound rationalization in writing for including the income for borrower qualifying.”
FHA rules also state, “If bonus income varies significantly from year to year, a period of more than two years must be used in calculating the average income.”
The key to all of this is consistency in the rate of pay, the amounts, and for how long.
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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