What Are The Income Requirements For An FHA 203k Loan?
The income requirements for an FHA 203k Loan specify that your income should be consistent and expected to continue. In addition, there are no minimum or maximum income limits for FHA 203k Loans as long as your income is sufficient to qualify.
How much Income is required to qualify for an FHA 203k loan?
The amount of income required to qualify for an FHA 203k Loan is determined by different factors such as Loan & Renovation amount, Interest Rate, and Debt to Income (DTI) ratios.
For FHA 203k loans, the maximum DTI ratio is 43% which compares your total monthly debt payments to your gross monthly income. Slightly higher ratios up to 50% or higher are possible with compensating factors.
Here are two very simplified DTI examples for an idea of how much income can be used towards credit obligations.
Scenario 1:
Sarah is looking to buy a fixer-upper home using an FHA 203k loan and has an Annual Income of $65,000 with Monthly Debt Payments of $500 (includes student loan and car loan, no house payment)
That gives her a monthly gross income of $5,416 and based on FHA guidelines, a 43% DTI of Sarah’s income = $2,328 minus $500 in debts which leaves Sarah with $1,828 left in income she can dedicate towards her house payment. If Sarah’s approval is based on a 50% DTI then $2,208 of her income can be used for her new house payment.
Scenario 2:
David & Maria want to purchase a home in need of renovation using an FHA 203k loan and they have an average monthly gross income of $9,300 and Monthly Debt Payments of $1,300 (includes credit cards and personal loan, no house payment)
Based on FHA Guidelines a 43% DTI of David & Maria’s income =$3,999 and with $850 in monthly debts that gives David & Maria $3,149 left from their income they can dedicate towards their house payment. If David & Maria’s approval is based on a 50% DTI then $3,800 from their income can be used for their new house payment.
*Installment debts, such as car or student loans with less than a year to pay, they can be excluded.
What income sources can be counted for an FHA 203k loan?
- Various income sources are considered viable, including salaries, wages, bonuses, business, self-employment, alimony, child support, rental income, retirement benefits & possibly non-traditional income sources.
- Income through full-time or part-time employment can be considered with a consistent two-year history with some exceptions to that rule, for instance like schooling, training, or maternity leave.
- For those who are self-employed or receive income as a 1099, it's important that your income demonstrates stability over a two-year period. This showcases that your earnings are reliable and consistent.
- Rental income is also recognized as a valid source of revenue for loan qualification purposes.
In addition to regular income sources, miscellaneous forms of income are also considered acceptable. This includes payments such as child support, alimony, and Note income. To be eligible, this miscellaneous income should have a documented 12-month history. Furthermore, evidence indicating that this income will continue for the next three years.
What income documentation is required for an FHA 203k loan?
You can provide proof of income through documents such as pay stubs, W-2 forms, 1099, tax returns, business tax returns, profit and loss statement and bank statements. Non-traditional income sources may require additional documentation to verify stability.
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