FHA loans are government-backed loans, which makes many people think they have income restrictions or income limits. In other words, many people think you can make too much money and not qualify for the program.
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Luckily, this is not the case. You can make as much money as you like and still be a good candidate for the FHA loan. The only loan program that restricts how much money you can make as far as government-backed loans, is the USDA loan. The USDA loan is for low to moderate-income families. If you make too much money, you would then be a good candidate for other loan programs, including the FHA loan.
Proving You Can Afford the Loan
The most important thing that the FHA and most other loan programs care about is how well you can afford the loan. In this case, the more money you make, the better your chances of securing a loan approval become.
The FHA has maximum debt-to-income ratios that they allow. They divide it up between two ratios – the front-end and the back-end ratio.
The front-end ratio is the housing ratio. It’s a comparison of how your proposed housing payment compares to your gross monthly income. The FHA prefers it if this ratio is less than 31%. If more than 31% of your gross monthly income is necessary to cover your housing payment, your loan will require further evaluation to determine if you are a good candidate for it.
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The back-end ratio is the total debt ratio. This includes not only the housing payment, but also any other outstanding monthly debts that you have. For example, any minimum credit card payments, car payments, student loan payments, or personal loan payments must be included. The FHA prefers that your total debt ratio doesn’t exceed 43%, but there are times when a lender can grant an exception.
How Income Limits Might Come Into Play
While the FHA doesn’t have specific income limits they set, there are limits to what the FHA will guarantee. This doesn’t depend on your income, but rather where you buy a home. Each county has a maximum loan limit. This doesn’t mean you can’t exceed that amount, though. You can, but you will have to prove that you have the money to make up the difference.
In this case, the more money you make, the better your chances of getting approved become. If you need to make up the difference in a down payment, you may have to put as much as 25% down. This isn’t on the full purchase price of the home but on the difference between the amount the FHA will guarantee and the amount you need to buy the home.
FHA loans are not just for borrowers that don’t qualify for conventional loans. They are for anyone that wants the benefit of the low down payment requirements and flexible underwriting guidelines. Of course, if you don’t qualify for a conventional loan, the FHA loan could be the next best thing. Talk with several lenders to see which loan options you have to determine which would suit you the best.
