It’s Time to Get Some Money: What Are FHA Loan Income Requirements?
Of all the home loans issued each year, FHA (short for Federal Housing Administration) and VA (short for Veterans Affairs) loans make up approximately one quarter.
Are you getting ready to buy a home? Are you unsure of how you’re going to be able to afford a home in your area? If you’re in this situation right now and are not a veteran, an FHA loan might be your best option.
Everything you need to know about FHA loans, including FHA loan income requirements, is explained down below.
What Are FHA Loans?
FHA loans are a type of mortgage that is insured by the Federal Housing Administration (hence the name, FHA loans). These loans aren’t issued by the FHA directly. Instead, they’re issued by special FHA-approved lenders.
An FHA loan is designed for folks who have low-to-moderate incomes. They have lower-than-average minimum down payments and credit score requirements.
With an FHA loan, a person who qualifies is able to borrow up to 96.5 percent of the value of the home. They only have to make a down payment of 3.5 percent of the home’s value. This makes them particularly enticing to first-time homebuyers who don’t have a lot of money in the bank yet.
Benefits of FHA Loans
There are plenty of reasons why you might want to choose an FHA loan over another mortgage type. The following are some of the most well-known perks they offer:
Stop Throwing Your Money Away on Rent
If you’ve been renting for a long time and feel tired of throwing away thousands of dollars every month, it might be time to pursue an FHA loan. Becoming a homeowner will allow you to put the money you spend each month toward eventually owning your property instead of just paying to store your stuff there.
Pay Less Money Upfront
Many people shy away from becoming homeowners because they think they can’t afford to down payment on a house. With an FHA loan, though, you pay much less than you would with a traditional mortgage loan. This makes it much easier for people who are still getting on their feet to buy a home and start building equity.
Easier Refinancing Process
In the event that you need to refinance your mortgage, the process is very easy when you have an FHA loan. There’s no need to have your house appraised when you look into refinancing, and you have the potential to save a lot of money in the event that mortgage interest rates drop by a significant amount.
Down Payment Gifts Are Allowed
Another great thing about FHA loans is that lenders will allow you to accept down payment gifts and put them toward your house. For example, if your parents want to help you buy a house and gift you a certain amount of money, you can claim that and use it cover some or all of your down payment.
FHA Loan Income Requirements
FHA loans are starting to sound like a pretty good option, aren’t they?
If you’re considering applying for this type of loan, there are some specific income requirements you’ll need to make sure you meet first. One of the most important things you’ll have to consider is your ratio of income to debt.
You don’t have to earn a certain amount of money to qualify for an FHA loan. However, your front-end ratio, which includes things like your mortgage payment, mortgage insurance, property taxes, and HOA fees, needs to be less than 31 percent of your gross income. The back-end ratio, which includes your mortgage payment and monthly consumer debts, needs to be less than 43 percent of your gross income.
There is some wiggle room here. In some cases, you might get approved if your front-end ratio is at or below 40 percent. The same is true of a back-end ratio that’s at or below 50 percent.
Additional FHA Loan Requirements
In addition to meeting these debt-to-income ratio requirements, you also need to consider whether you meet some other criteria. This includes the following:
First, you need to keep some things in mind when searching for your home.
For example, the house has to be appraised by someone approved by the FHA. The home also has to be your primary residence (not an investment property or vacation home).
You need to have a plan to occupy the home within 60 days of your closing date, too, and it must be inspected to ensure it meets minimum standards set by the FHA.
Credit Score Requirements
The credit score requirements for FHA loans are much lower than regular loans. To qualify for the 3.5 percent down payment, you must have a credit score of at least 580. If you have a credit score that’s lower than this but above 500, you can still qualify for a loan, but you’ll need to pay a larger down payment of 10 percent.
There are limits to the amount of money you can borrow using an FHA loan, too. The amount you can borrow will vary depending on where you live and the median home price in your area. Check with your lender to see how much you can borrow before you start shopping for houses to avoid choosing something that’s way out of your price range.
Finally, there are some specific documents you’ll need to present when you start talking to a lender about FHA loan information. This includes proof of your social security number, as well as your tax returns or copies of your pay stubs to verify your income.
Apply for an FHA Loan Today
Now that you know more about FHA loans and FHA loan income requirements, in particular, do you think this is a good option for you as a potential homebuyer? If so, make sure you can meet the requirements outlined above and you’ll be well on your way to qualifying for an FHA loan.
If you need more insight into saving for a house or buying a new home, we’ve got plenty of resources for you to check out. Head to the Money section of our website today to get started.