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Some borrowers want to know if FHA home loans have an income limit. The implication is often that FHA loans are intended for a certain type of applicant and that some borrowers might be disqualified for an FHA mortgage because they earn too much money.

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FHA Requirements on Caps and Minimums

FHA Requirements on Caps and Minimums
May 6, 2016 - Some borrowers want to know if FHA home loans have an income limit. The implication is often that FHA loans are intended for a certain type of applicant and that some borrowers might be disqualified for an FHA mortgage because they earn “too much” money.

Other FHA mortgage loan applicants or refinance loan applicants want to know if FHA loan rules specify a minimum dollar amount a borrower must earn to qualify for an FHA mortgage.

While HUD 4000.1 does have standards for debt-to-income ratios and requires the lender to verify a borrower’s employment and income, HUD 4000.1 does not specify a maximum income cap. FHA loans are for any qualified borrower who intends to purchase and occupy the home. FHA home loans are not created for a specific income bracket, so the idea that an applicant would be turned down for an FHA loan or refinance loan because he or she earns “too much” is a misconception. HUD 4000.1 states of a borrower’s income and the requirements for it:

“The Mortgagee must document the Borrower’s 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 Borrower’s tax returns. Negative income must be subtracted from the Borrower’s gross monthly income, and not treated as a recurring monthly liability unless otherwise noted.”

In short, there is no such thing as an “earnings cap” for FHA mortgages.

While there is no such thing as an FHA required minimum income, 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 new loan in addition to his or her existing financial obligations. FHA debt to income ratio requirements are affected by FICO scores; the better your FICO score the more “lenient” you may find the debt to income requirement (up to a certain point). Lender standards may also apply.

What is the debt-to-income ratio? It’s 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-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). Other lenders may have different requirements, you will need to speak to a loan officer about your specific circumstances to see what may apply.

Furthermore, your monthly mortgage payment itself cannot exceed a certain percentage of your monthly income. This percentage may vary depending on the lender. There is no minimum income amount listed for borrowers to qualify for an FHA mortgage loan, but it is the lender’s job to insure the borrower can afford the loan based on the calculations made with your verifiable income (not all income is considered verifiable-it must be judged as stable and likely to continue).

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