Elsewhere on this website, we have covered some of the minimum requirements for an FHA loan. Today, we will zero in on the amount of income that’s needed to qualify for an FHA loan.
While the Federal Housing Administration does not have any specific income requirements for FHA loans, they do have some established guidelines for what’s known as the debt-to-income (DTI) ratio. This ratio can determine how much you are able to borrow with an FHA loan, based on your monthly income level.
In short: Most borrowers are limited to a total DTI ratio of no more than 43%. For well-qualified borrowers with compensating factors, the DTI can be as high as 50% in some cases.
Minimum Income Needed for an FHA Loan
What is the minimum income needed to qualify for an FHA home loan? This is a common question among borrowers who are considering the Federal Housing Administration’s mortgage insurance program.
As mentioned above, FHA does not set an official minimum income needed for an FHA-insured mortgage loan. But they do have some guidelines for a borrower’s DTI ratio.
Definition: As you might have guessed, the debt-to-income ratio is a numerical comparison between the amount of money you earn and the amount you spend to cover all of your debts. In this context, we are talking about monthly recurring debts such as credit card payments, car payments, student loans, and the mortgage loan itself.
In essence, this ratio represents the minimum income needed to qualify for an FHA loan.
- For most borrowers, the DTI cutoff is 43% (including the mortgage payments).
- But there are some exceptions for borrowers who have compensating factors.
- A borrower with one compensating factor can have a DTI ratio up to 47%.
- A borrower with two or more compensating factors can go as high as 50%.
In this context, a “compensating factor” might be additional cash reserves in the bank, residual income left over each month, or a minimum increase in the housing payment.
So these guidelines could be considered the minimum income needed to qualify for an FHA loan. Why there are no official income requirements for this program, borrowers generally have to fall within the DTI parameters outlined above.
Frequently Asked Questions
To recap, there is no official minimum income needed to qualify for an FHA loan. The Federal Housing Administration leaves the income screening process up to the mortgage lenders who generate these loans. But there are specific guidelines relating to the DTI ratio for borrowers, as outlined above.
Here are some additional frequently asked questions relating to the income requirements for FHA loans.
How do mortgage lenders verify income for FHA home loans?
When you apply for an FHA loan, your mortgage lender will review all aspects of your financial situation. In order to verify your monthly income, they will look at your most recent bank statements, pay stubs, and tax records. These and other documents help the lender determine if you have the income needed to qualify for an FHA loan. This is often done during the “pre-approval” process.
Can I make too much money to qualify for this program?
No, you cannot make too much money to qualify for an FHA-insured mortgage loan. There is no maximum income requirement for this program. While the program is designed for borrowers with a low to moderate income level, it is not necessarily limited to that group.
Does my spouse’s income counts toward mortgage qualification?
That depends. If your spouse is listed on the mortgage documents, then his or her income will count toward FHA loan qualification. This could help you qualify for a larger loan amount. On the other hand, if your spouse is not listed on the mortgage documents, their income probably won’t be counted.
How many years of income do I need to qualify?
This can vary. Generally speaking, mortgage lenders want to see at least two years of steady income for FHA loan qualification purposes. But there can be exceptions for borrowers who are otherwise well qualified. Check with your lender about their specific requirements.
Disclaimer: This article explains the minimum monthly income needed to qualify for an FHA home loan. Most of the information above was adapted from the official program guidelines, including HUD handbook 4000.1 (Single-Family Housing Policy Handbook). Portions of this article might not apply to your particular situation. Exceptions can be made for many of the FHA loan requirements, including the income guidelines. Ultimately, the only way to know if you qualify for this program is to speak to a HUD-approved mortgage lender.