FHA Loan Income Rules: A Reader Question

A reader asks, "I was prequalified for an FHA loan and during escrow, my agent said I made too much money to be eligible for the loan. Does that make sense?"

The simple answer to this question is no, the notion that a borrower makes too much money to qualify for an FHA mortgage loan does not make sense. But let's examiner what official FHA and HUD documents say about the single-family FHA loan program:

"If you are buying a home, refinancing a mortgage for a home you already own, or making home improvements, you may qualify for an FHA-insured mortgage.

In fact, almost anyone who has a satisfactory credit record, enough cash to close the loan, and sufficient steady income to make monthly mortgage payments can be approved for an FHA-insured mortgage. There is no upper age limit and no certain income level required, although individual mortgage amounts are limited by law. Generally, homebuyers must live in the home in order to get an FHA-insured mortgage loan. The program is not open to investors."

That is from the HUD publication titled, "The Guide to Single Family Home Mortgage Insurance", which can be downloaded from the FHA/HUD official site at http://portal.hud.gov/hudportal/documents/huddoc?id=1235h.pdf.

Note that the quote provided above mentions that there is "no income level required". That would include a maximum limit on income. Those who apply for FHA home loans will have their debt-to-income ratios and FICO scores reviewed and there are definite limits to the amount of a mortgage loan that can be guaranteed by the FHA. But to the best of our knowledge no borrower has ever been denied on the basis of earning too much money.

Borrowers should know that FHA home loans are not specifically designed for a certain category of borrower--while it's true that an FHA loan can indeed be a big help to people with low to moderate incomes (thanks in part to lower down payments and more competitive mortgage loan rates than conventional loans), those people are not the only ones who are able to apply for an FHA mortgage.