Do FHA Dwelling Loans Have An Revenue Cap?
Some borrowers learn that FHA mortgage loans are federally secured and guaranteed by the FHA and the HUD, which can lead to certain assumptions about the nature of a federally secured mortgage.
One of the misconceptions about FHA home loans is that because of their state affiliation, they either have an income limit or are otherwise needs-based.
Some borrowers may confuse the USDA government-sponsored loan program with the FAH loan rules. USDA loans ARE demand based. However, the FHA loan rules in HUD 4000.1 do not set a maximum income and do not require any specific financial need to qualify.
FHA loans have no low income requirement, no household income limit, or the requirement that you are a first-time buyer. Instead, these loans are intended for those who are looking to buy a home and are looking for an alternative, affordable option to some traditional mortgages.
FHA Loan Income Verification Rules
Income verification is a common process with home loans, not just FHA mortgages. The phrase means that your income from the loan officer must continue to be stable, reliable, and likely to exist. It is not a determination that you meet or exceed income limits or other restrictions found on other home loans but NOT on FHA mortgages.
In the FHA regulations for single-family home loans, HUD 4000.1, it says:
“The mortgagee must document the income and employment history of the borrower, verify the accuracy of the reported income amounts and determine whether the income can be viewed as effective income …”
And how does the lender determine that?
“… The mortgagee may only take income into account if it is lawfully derived and, if necessary, properly reported as income in the borrower’s tax return. Negative income must be deducted from the gross monthly income of the borrower and should not be treated as a recurring monthly liability unless otherwise stated. “
You will not find a reference to an upper earnings limit for FHA loans in the regulations.
The FHA loan program also has no minimum income. The borrower must be able to afford the mortgage loan in addition to their existing financial obligations, but this is not the same as specifying a minimum amount in dollars that you must earn as income to qualify. Instead, the lender takes your earnings into account in a debt-to-income ratio calculation.
The debt to income ratio is determined by the amount of demonstrable income, which is then compared to the amount of monthly debt.
The borrower’s debt cannot exceed a certain percentage of income, especially if the borrower has more than 43% of monthly income for financial obligations including the forecast monthly mortgage.