Income limits for first time home buyers is important to understand. As a first time home buyer, you may be able to qualify for mortgage financing on terms that are quite generous. Those terms include no or low down payments. Having no down payment, or a very low down payment puts home buying for many first time buyers within reach. If you have never owned a home, or if you have not owned your principal residence for the last three years, you may be eligible to apply for first-time home buyer loans and benefits. To qualify, you must meet the other eligibility requirements. Whether that includes an income limit, and what that limit may be, depends on the requirements of each mortgage loan program.
When Do Income Limits Come Into Play?
Income limits become important if you apply for local, state, or certain federal government assistance. Some national mortgage programs, such as loans issued or backed by the U.S. Department of Agriculture, also have household income limits. To qualify for a guaranteed USDA loan, your household income must be less than 115% of the median income for the designated area where you intend to live.
One new program is offered by Fannie Mae, which guarantees certain mortgage loans made by mortgage lenders. Under the Fannie Mae HomeReady loan program, there are income limits except in designated low-income neighborhoods. On the other hand, Fannie Mae’s standard loan requires three percent down payment but does not have income maximums if at least one borrower is a first-time home buyer.
Freddie Mac also offers a flexible new program called HomeOne. For this program, at least one borrower must be a first-time home buyer, but there are no income limits or geographic restrictions. One of the most popular first time home buyer programs is a mortgage loan program guaranteed by the Federal Housing Administration (FHA). Under the FHA rules, there are no maximum or minimum income requirements. The FHA regulations are instead focused on the borrower’s ability to repay the mortgage loan.
Income Benchmarked To Local County Limits
As noted earlier, some low-down-payment conventional loans do have household income limits. For those programs, your income will likely be benchmarked to the limits set by the county for low- and moderate-income households. Income limits depend on the area, but generally, the maximum base income level in 2020 is $90,300 for a household of 1-4 people and $114,650 for a household of 5-8 people. The limits are higher in more expensive areas.
Debt-To-Income Ratio Consideration
One of the most important factors in getting a mortgage loan is your debt-to-income ratio. (Your credit score is another important factor). To qualify for an FHA loan or any one of the other first-time buyer mortgage loan programs, you will have to be able to prove you can repay the loan. To evaluate your ability to repay, the lender will examine your existing debt obligations and your income and calculate your debt-to-income ratio. It compares your total debt to total assets. Your debt includes all of your recurring monthly payments, such as credit card payments, student loan payments, car payments, and so forth.
Your total monthly pre-tax income (salary, wages, child support, and any other income) amounts to your assets. Your lender will divide your total debt by your total assets to determine your debt-to-income ratio. Generally, your debt-to-income ratio should be no higher than 43%. Some lenders will grant a loan to you if your ratio is higher, but you may need a stellar credit score and perhaps guarantors on the loan.
How Do I Qualify For Down Payment Assistance?
Some first-time buyers can qualify for help with their down payment. Every state has an assistance program for first time home buyers. Down payment assistance helps homebuyers with grants or low-interest loans that reduce the amount you need to save for a down payment. The requirements you need to meet in order to qualify for down payment assistance will depend on where you live and what programs are available. Most of them have similar guidelines, including:
- Must be a first-time home buyer.
- Must have low- to moderate-income.
- Must use the home as your primary residence.
- The home is in a “targeted” census tract.
- Must use the assistance in conjunction with an approved mortgage program.
- Must work with an approved mortgage lender for the loan program.
How Do I Find A First Time Home Buyers Loan?
Many first-time buyer loan programs are available. However, they are all different, and you need to find the one that is the best fit for you, your family, and your household financial circumstances.
Reach Out To Fairfax Mortgage Investments Today
Mortgage loans for first-time home buyers are a great way to become a homeowner. The key is getting into the loan program that suits your needs. To find the program that works best for you, contact the mortgage loan experts at Fairfax Mortgage Investments. They are available to answer your questions about first-time buyer loan programs as well as any other mortgage loan program. Call us at (703) 214-7255 with Fairfax Mortgage Investments or contact us online for more information about financing your first home.