FHA loans are backed by the Federal Housing Administration. The eligible borrowers can get a home loan from an FHA-approved lender with a 3.5% down payment. This alone makes FHA mortgages appealing to many individuals.
While there are criteria for getting an FHA mortgage loan, the income certainly isn’t an issue. In short, there is no minimum or maximum income requirements for getting an FHA home loan. What matters is your income to debt ratio and credit score.
Generally, your FICO credit score must be over 500 but if it is lower than 580, you won’t be eligible for the 3.5% down payment. Instead, the down payment will be 10%. Aside from that, you must have a mortgage insurance premium. You can pay this insurance either upfront in one payment or pay it annually divided to 12 months.
How to calculate mortgage insurance premium?
First and foremost, you must know the percentage that is used in calculating the mortgage insurance premium. You can see this in your home loan details. Let’s assume the mortgage insurance premium percentage that applies for that year is 1.75% and the loan amount is $200,000. This means you will pay $3,500 in mortgage insurance premium.
This can be paid upfront or annually. It is all up to you. Since there is no interest in paying it monthly, we suggest adding it to your monthly payments.
Debt to Income Ratio
Another thing that goes into determining if one is eligible for an FHA or loan or not is the existing debts. To get an FHA loan, your total debt burden cannot be more than 43% of monthly income while the monthly housing payments should not exceed 31% of gross monthly income.
As long as you meet these requirements, you can borrow an FHA loan without any problems. If you’re not eligible due to your credit score, read the articles below to see how you can increase credit score.