FHA Loans: What Are the Income Qualifications to Secure One

Bruno Simpson Last Updated Jun 14, 2017 (0) comment

Income Qualifications for Home Loans

Many home buyers are uncertain about the lending process and often wonder about the necessary income qualifications. With the average home costing over $300,000 in the United States, coming up with a 20% down payment means coming up with $60,000 cash. This may be a difficult thing for many buyers.

Some buyers are torn between inadequate cash to make a down payment on a new home and a rocky credit score, including piling debt. Factors like this make it difficult to be taken seriously for a conventional loan but don’t give up on your dream of buying your very own home just yet.

Have you considered an FHA loan? If not, this post will cover all the essentials, complete with the income requirements and whether this type of home loan is a feasible option for you.

Is the FHA Loan Suitable for You?

Federal Housing Administration, an agency within the U.S. Department of Housing and Urban Development, insures the FHA mortgage, facilitating individuals and borrowers alike in case the former defaults on the loan. The guarantee is what forms the basis of competitive interest rates and even for the easy qualification for people who may not be termed eligible for conventional home loans.

At the most basic level, to qualify for this program you must:

  • Hold authorized residency in the United States
  • Provide a legitimate Social Security Number
  • Be of legal age

Assuming all of the above, the private lenders proceed to verify your assets and liabilities, your credit history, and more importantly, your income for each of the concerned parties. The FHA approved lender is going to compare your present housing expense to that of what you’ll have in future; the greater the difference, the weaker your position is going to be.

Home Loan Qualification & Income Requirements

The FHA specifies no minimum income requirement for borrowers to qualify for the loan even though you do need to make sure that you make enough to cover the mortgage payments and other debts. However, the point is to make it easier for people to refinance their existing mortgages and purchase homes, which is why they are a lot more flexible than the rest of the loans choices that are out there.

If you are working to qualify for some form of secondary financing, not excluding the ones that the HUD funds, which are to be used along with the FHA loan, then you may come across income limits. These limits help FHA-approved lenders decide whether or not you are a suitable candidate.

You will be asked, for instance, how much of the total income you will be spending on the housing as it will allow your lender to see if you can afford the home comfortably or not. All the money you earn before paying for the taxes, including things like commissions, overtime, dividends, etc. will be considered. You have to have a consistent history, for at least two years, to be eligible.

Another thing is that the FHA recommends individuals to be able to afford at least 29% of the gross income on the house payment – remember, that payment includes mortgage interest, mortgage principal, hazard insurance, and property taxes. According to the HUD, the percentage is acceptable because it lets buyers qualify even if they have a lower income. And the fact that the FHA home loans are flexible in this instance is one of the advantages for a number of applicants.

Types of Income

The Federal Housing Administration allows the following sources of income:

  • Child support
  • Pensions
  • Wages
  • Social Security
  • Veterans’ benefits
  • Bonus payments
  • Alimony

Exceptions

If you have a less acceptable debt-to-income ratio, you may be allowed for a FHA loan if you have significant cash reserves or other evidence to show you can handle it. There are options for bad credit homebuyers and one of the strongest ways to get started is to view your credit report for accuracy, speak with a lender for a free quote, and decide how best to proceed following that early advice.

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