- FHA requires that homebuyers only qualify for loans that they can afford.house image by hans slegers from Fotolia.com
The Federal Housing Administration (FHA) insures loans originated by approved lenders throughout the United States. Typically, FHA loans offer lower interest rates and more flexible approval criteria than other mortgage loans. Prospective homebuyers can find a database of lenders approved by the U.S. Department of Housing and Urban Development on their website (see Resources). - FHA does not set precise income minimums. However, prospective homebuyers must be able to demonstrate that they can comfortably afford their new mortgage payment along with other monthly debt payments. Also, a steady job history plays an important role in qualifying for an FHA loan. According to Quicken Loans, the FHA does not have a maximum income limit.
- FHA requires that your new mortgage payment is not more than 31 percent of your total gross monthly income. Other amounts factored into the 31 percent cap include property taxes and homeowners insurance. Thus, those with limited incomes will qualify for smaller loans. For example, a prospective buyer with a gross monthly income of $1,200 could only qualify for a mortgage with a total payment of $372 per month. However, someone with a monthly income of $2,000 may qualify for a mortgage with a total monthly payment of up to $620.
- FHA also requires that all of your monthly debt payments, including your house payment, not exceed 41 percent of your monthly gross income. Payments included in this formula include car payments, installment loans, insurance payments, credit card payments and student loan payments. Expenses not included in the debt-to-income ratio include child care, utilities and any debt that will paid off within a 10-month time period. To increase the chances of securing an FHA loan, prospective homebuyers should pay off as many smaller debts as possible.
previous post
next post