FHA loans help make buying or refinancing a home more affordable. These loans are popular with first-time homebuyers as well as homebuyers who may have lower credit scores or less money for a down payment.
At Freedom Mortgage, we sometimes get asked "Do FHA loans have income requirements?" Often these questions are about whether there is a minimum income you need to qualify for an FHA loan. For example, a homebuyer might ask "Do I need to make at least $50,000 a year to get approved for an FHA loan?"
The answer to this question is "no". There are no minimum income requirements for FHA loans. However there is a maximum debt-to-income ratio (DTI) requirement that does affect your eligibility.
Debt-to-income ratios for FHA loans
Debt-to-income ratio is a percentage you get by dividing your monthly debt payments by your monthly gross income. For example, say your monthly debt payments for a student loan and a car loan total $1,000. Then say your monthly gross income is $5,000. In this case, your debt-to-income ratio is 20%. (That is $1,000 ÷ $5,000 = 0.20 or 20%.)
FHA loans often have a maximum debt-to-income ratio of 43%. This means all your debt payments – including your FHA mortgage payment – cannot result in a DTI higher than 43%. Take a look at this sample calculation:
|Monthly gross income||$5,000|
|Monthly debt payments||$1,000|
|FHA mortgage payment||$1,100|
|Total debt payments||$2,100|
|DTI calculation||$2,100 ÷ $5,000 = 0.42|
In this example, the homebuyer might qualify for an FHA loan with a monthly payment of approximately $1,100. You can see that their monthly income affects whether they qualify for an FHA loan and how much they may be able to borrow to buy a house.
When you are estimating your debt-to-income ratio, keep in mind that your monthly FHA mortgage bill includes payments for interest, principal, mortgage insurance premiums (MIP), property taxes, and homeowners insurance. The cost of your taxes and insurance will also affect your DTI and the price of houses you can afford to buy as a result.
Debt-to-income ratios for FHA loan refinances
When you are refinancing an FHA loan with the streamline program, you can often avoid calculating a new DTI. FHA streamline refinances let you replace your current FHA loan with a new FHA loan which has a lower rate or better terms. The streamline program has less paperwork, fewer credit and income requirements, and faster closings.
Ask us about FHA loan income requirements
Freedom Mortgage is the #1 FHA lender1 in the United States. We’re happy to answer your questions and help you decide if buying or refinancing a home with an FHA loan make senses for you. Visit our Get Started page or call our helpful Loan Advisors at 877-220-5533.
1. Inside Mortgage Finance, 2021