FHA Loan Income Requirements: A Complete Guide

Thinking about buying a home but worried your income won’t make the cut for a traditional mortgage? You may want to consider an FHA loan.

Designed to help folks with irregular or low-to-moderate incomes, FHA loans aren’t wrapped up in high-income demands. They’re a solid option if your income has been unpredictable, you’re self-employed, or you’ve hit a few bumps financially.

This article breaks down what you need to know about FHA loan income requirements, showing you how owning a home could still be within reach even with less-than-perfect income or credit. Let’s dive into what it takes to qualify.

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What is an FHA loan?

An FHA loan is a mortgage backed by the Federal Housing Administration, primarily aimed at helping first-time buyers and those with lower incomes become homeowners.

FHA loans are especially appealing because they allow for smaller down payments—starting as low as 3.5%—and are more forgiving about credit scores than many conventional loans.

By including mortgage insurance, FHA loans offer lenders protection against default losses, making it easier for buyers to qualify and afford a home.

This supportive approach opens homeownership opportunities to more people, making it more accessible across the board.

What are FHA loan limits?

FHA sets loan limits for each county, determining the maximum amount they will insure for a mortgage. These limits directly influence how much you can borrow.

FHA loan limits are generally lower than those for conventional loans, making FHA loans more accessible to a broader range of buyers. The specific limits for your area are on the HUD website.

FHA loan eligibility requirements

You must meet specific requirements and loan limits to be eligible for an FHA loan, including:

• A minimum credit score of 580
• A debt-to-income ratio of no more than 43%
• Proof of income and employment, including a stable and sufficient income
• A valid Social Security number
• Satisfactory completion of a housing counseling program
• Property must be appraised by an FHA-approved appraiser and meet certain standards
• Must be your primary residence, and you must occupy it within 60 days of closing
• FHA inspection is required to ensure the property meets minimum safety and security features

Income requirements for an FHA loan

There are no minimum income requirements to qualify for an FHA loan.

However, borrowers must provide proof of stable and sufficient income to ensure they can manage their new mortgage payments along with any other debts.

Here’s a detailed look at what constitutes stable income and how lenders typically verify this during the FHA loan application process.

Stable income

Income must be reliable and expected to continue at least for the first three years of the mortgage.

Lenders look for consistency in your income, which means having a history of steady employment—typically at least two years of continuous employment in the same job or industry.

Sufficient income

This means the income level is adequate to cover monthly mortgage payments, as well as living expenses and debt obligations. The lender will calculate your debt-to-income ratio (DTI) to determine if your income is sufficient.

For FHA loans, a DTI of up to 43% is acceptable, but in some cases, lenders may allow a DTI ratio up to 50% with strong compensation factors such as significant savings or an excellent credit score.

Income verification requirements for getting an FHA loan

Lenders use various documents to verify your income, which must be documented and authentic.

By requiring this documentation, FHA lenders can ensure that the borrower has the ability to repay the loan.

Here’s the documentation you can expect to provide:

• W-2 forms for the past two years
• Pay stubs covering the last 30 days
• Federal tax returns from the past two years (especially for self-employed workers)
• Employment verification by directly contacting your employer
• Profit and loss statements (for self-employed individuals only)

Credit score and income’s impact on FHA loans

FHA loans are known for their flexible credit score requirements, making them accessible to a broader range of borrowers. However, your credit score not only influences eligibility but also impacts the terms and interest rates of your loan.

Higher credit scores generally secure better terms and lower rates. Additionally, stable and sufficient income can enhance your loan terms, as lenders assess your ability to repay the loan based on income relative to your debts.

While traditional lenders often seek credit scores above 620, FHA loans allow for lower scores—you can qualify with a score as low as 580 to be eligible for a 3.5% down payment.

Those with scores between 500 and 579 can still qualify, but typically need a 10% down payment.

Common myths about FHA loans and income requirements

FHA loans are often misunderstood, especially regarding income requirements and eligibility.

The following are a few common myths debunked to provide clarity for potential borrowers.

Myth: FHA loans are only for low-income borrowers

Fact: While FHA loans are designed to assist lower-income buyers, they are available to a broad range of income levels. The primary consideration is not the amount of income, but rather the borrower’s ability to manage mortgage payments alongside existing debts, reflected by their debt-to-income ratio (DTI).

Myth: Self-employed individuals cannot qualify for FHA loans due to fluctuating income

Fact: Self-employed people can qualify for FHA loans. Lenders will look at the last two years of income to determine stability and consistency. Proper documentation, like tax returns and profit and loss statements, can help prove that your income is reliable enough for loan approval.

Myth: Your income must be from a conventional job to be considered for an FHA loan

Fact: FHA loans allow income from various sources for qualification purposes, including salaries, wages, self-employment earnings, bonuses, and even certain types of benefits such as disability or Social Security income. The key is that the income must be verifiable and likely to continue.

Myth: Bonuses and overtime cannot be counted toward income qualifications for an FHA loan

Fact: FHA loans allow borrowers to include variable income sources such as bonuses, overtime, and even part-time jobs in their total income, provided they can demonstrate a two-year history and likelihood of continuance. Lenders require thorough documentation but are open to diverse income streams.

Get started with an FHA loan today

FHA loan income requirements don’t have to be complicated. Whether you’re looking to buy your first home or refinance, MyPerfectMortgage.com is here to guide you through the process. Ready to see if you qualify?