December 2, 2021

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Do FHA Home Loans Have An Income Cap?

FHA Home Loan Resources

Some borrowers learn that FHA mortgage loans are government-backed and guaranteed by the FHA and HUD, which can lead to certain assumptions about the nature of a government-backed mortgage.

One of the misconceptions about FHA home loans is that due to their government association have either an income limit, or are otherwise need-based.

Some borrowers might be confusing the government-backed USDA loan program with the FAH loan rules. USDA loans ARE need based. However, FHA loan rules in HUD 4000.1 do not specify a maximum income and do not require a specific financial need to qualify.

FHA loans do not have a low-income requirement, a household income cap, or a requirement that you be a first-time buyer. These loans are instead designed for those who want to purchase a home and want an alternative, affordable option compared to some conventional mortgages.

FHA Loan Income Verification Rules

Income verification is a process common amongst home loans, not just FHA mortgages. The phrase means that your income must be verified by the loan officer as stable, reliable, and likely to continue. It is not a determination that you meet or exceed income limits or other restrictions that may be found in other home loans, but NOT FHA mortgages.

The FHA Single Family Home Loan rulebook, HUD 4000.1, states:

“The Mortgagee must document the Borrowers 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…”

And how does the lender determine this?

“…The Mortgagee may only consider income if it is legally derived and, when required, properly reported as income on the Borrowers tax returns. Negative income must be subtracted from the Borrowers gross monthly income, and not treated as a recurring monthly liability unless otherwise noted.”

You will not find any reference to an earnings cap for FHA loans in the rulebook.

The FHA loan program also does not specify a minimum income. The borrower must be able to afford the mortgage loan in addition to his or her existing financial obligations, but this is not the same as specifying a minimum dollar amount you must earn as income to qualify. Instead, the lender factors your earnings into a debt-to-income ratio calculation.

The debt to income ratio is determined by the amount of verifiable income, which is then compared to the amount of monthly debt.

The borrower’s debts cannot exceed a certain percentage of the income, especially when the borrower has more than 43% of the monthly income going toward financial obligations including the projected monthly mortgage.

Joe Wallace - Staff Writer

By Joe Wallace

September 29, 2021

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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