The U.S. housing market has been notoriously difficult for the past few years. With house prices rising yearly, many potential homeowners have had to resort to years of waiting to save for a down payment or practicing patience as their applications get beat out by cash offers.
When the U.S. median home price sits just under $429,000.00, getting approved for a loan might seem overly daunting. However, for those hopeful homeowners that may not qualify for a conventional loan, a Federal Housing Administration (FHA) loan can be a great option.
But what are the FHA income requirements, and how do they vary from state to state?In this article, we’ll explore why FHA loans are great for potential homeowners and the income requirements between states. But first, let’s answer this question.
What Is an FHA Loan?
FHA loans are mortgage loans focused on first-time home buyers. These loans are insured by the Federal Housing Administration, which means the U.S. government backs them.
These mortgage loans are similar to standard mortgages as traditional financial institutions issue them. Because of their federal backing, FHA loans are good for borrowers with lower credit scores or for those borrowers short on typical cash amounts needed for a down payment.
Borrowing guidelines are a little different than a traditional mortgage loan, and income requirements for these loans will vary from state to state.
FHA Income Requirements
Different FHA loans cater to various financial scenarios similar to a conventional home loan.FHA loan types include:
- Basic fixed-rate loan
- Adjustable-rate mortgage
- FHA renovation mortgage
- Energy-efficient mortgage
- Reverse mortgage
- FHA 203(k)
Regardless of the type, a few basic requirements will vary depending on your location, and a few will stay the same.
The big three requirements that don’t generally change include:
- 500 or above credit score
- Debt-to-income ratio must be 50% or less
- A down payment between 3.5 and 10%
From there, you’ll also expect an appraisal to be completed. You should also expect to pay mortgage insurance if your down payment is less than 10%.
Income requirements will be a bit more specific than these general basics that stay relatively similar for each applicant. Lenders will want to confirm proof of a borrower’s consistent income.
Your lender will want to confirm that you have established credit and no delinquencies on your public records, such as tax liens or judgments. However, no specific minimum or maximum limits to income are required for FHA loans.
For the property itself, however, FHA loan limits must be met. These limits are county-dependent, with single-family homes clocking in at around $420,000.00 in low-cost areas. That number climbs significantly higher in high-cost areas to just under $971,000.00.
The U.S. Department of Housing and Urban Development website allows potential borrowers to look up various mortgage limits via their website. There, you’ll be able to see the limit amounts within the ranges listed above, depending on which state and county you choose.
Your income source will be more important when applying for an FHA loan than the income amount itself.
Documentation needed when applying for a mortgage will look fairly similar for each applicant. Your lender will likely request a few of the following documents during the application process:
- Tax documents
- Social security number
- Government ID
- Current bills
- Pay stubs or bank statements
While income requirements remain the same, property requirements do not. They vary significantly, making the qualification process a bit more intensive. Requirements might include:
- No investment properties
- Must pass appraisal
- No house flips
- Must be a principal residence
In addition to the property itself, mortgage insurance is a key aspect towards approval. Because lenders want to mitigate their risk as much as possible, an insured home loan makes lenders more willing to offer an FHA loan.
Mortgage insurance is a requirement that helps protect a lender’s interest. Borrowers will be required to pay two premiums as part of the FHA loan process. One is an upfront closing cost; the other is an annual premium paid during the life of the loan.
The annual mortgage insurance premium will vary depending on the full amount of your loan, the term length, and the overall loan-to-value ratio. Some premiums can be financed into the overall loan itself, making them part of your overall monthly mortgage payment.
One helpful item of note is that FHA rates are fairly competitive. Because these loans are government-backed, locking in a low-interest rate is possible even without a large down payment.
High-interest rates can be a big deterrent for aspiring homeowners. FHA loans help mitigate this stress by offering low rates, even for those who have low credit scores or minimal down payment amounts available.
Ready to Apply for an FHA Loan?
When it comes to FHA income requirements, all incomes are welcomed. It’s helpful to remember that approval for an FHA loan is based more on a borrower’s ability to repay the loan. A steady income is more important than an income amount for FHA loans.
If you’re unsure what information you’ll need to gather, our team at 7th Level Mortgage can help. We’ll help you see how much financing you qualify for, and we’ll review the documentation needed to start the process.
Contact us today to explore your loan options. We can’t wait to help you find your new home!
7th Level Mortgage is a leading one-stop mortgage company providing deeply informed, custom-tailored assistance with each mortgage transaction phase. If you are searching for a home loan in New Jersey, Pennsylvania, Delaware, Maryland, New York, or Florida, please contact us today so that we can determine the best Mortgage Lender to place your loan with and get you the best possible rate and program.