FHA Mortgage Loans are generally easier to qualify for than a more Conventional Home Loan from Fannie Mae or Freddie Mac. One reason for this is due to the fact that FHA Underwriters are able to look at more “non-traditional” income from a household – either as qualifying income, or “off-setting income” for those with higher debt to income ratios.
Income Qualifications FHA Mortgage Loans in NC
Specific income qualifications we use to qualify borrowers for FHA Mortgage Loans in NC:
- FHA allows us to “count” part-time income if you have more than an 18 month history of working 2 jobs.
We can also count tips, as long as you report them!
Many people in North Carolina working in the IT field are working on long-term contracts, they are not actually the employee of the company where their office is. If you’ve been working on contract for over 18 months we can generally get the loan approved (takes some extra work!).
If you are laid off every year at the same time, we can still get your loan approved. We just got a loan approved for a guy who works at a local University in their food services department. Every year, right after graduation in May, he’s laid off. In August, he is rehired. He’s done this for 5 years. Once he receives his August paycheck (in a few weeks) we will be able to close his loan! We could count his unemployment AND his regular income from the University / State to qualify him!
As you can see, the Income Qualifications FHA Mortgage Loans in NC are much easier than those for a Conventional or USDA Home Loan!
Using Rental Income to qualify for a FHA mortgage Loan can be tricky – if this is the situation you are in, please click here for details.
One of the first questions we will ask when we speak with you… is how much of your total income you feel comfortable spending on housing. This ratio of Gross Income to Housing Expense helps the lender decide whether you can comfortably afford a home.
When you are qualifying for a loan, a we will use your gross income. That means all the money you earn before taxes, including overtime, commissions, dividends and any other sources. Again, we are looking for the income BEFORE insurance and any money goes out to 401K. If you receive Social Security or Pension income – we will gross that income UP for qualifying!
Your total monthly housing expense as a percentage of your monthly income is called the housing expense (a.k.a.: front-end) ratio. FHA wants a ratio of about 29% of your income to your house payment (including the mortgage, property taxes, mortgage insurance, hazard insurance and any Home Owner Association Dues).
Calculate what your new monthly mortgage payment should be by using the formula:
Gross Monthly Income multiplied by 29% = Maximum TOTAL Mortgage Payment.
Especially in situations when someone is just entering the job market the 29% of gross income just doesn’t “buy” the house of your dreams! That’s one of the benefits of easier qualifying guidelines for FHA home loans! To qualify, you’re allowed to spend up to 34% of your income on your house payment, as long as everything else in your application shows that you can handle the “stretch.” (READ, as long as you don’t have a ton of other payments, like a $500 car payment!). If you qualify for the NCHFA First Time Home Buyer Program, then we might be able to offset higher ratios with a 2014 Mortgage Tax Credit!
Another thing the FHA Mortgage Underwriter will look at in considering your loan for approval is the difference in your housing expense now to the expense you’ll have if you buy a home. (It’s called Payment Shock) The smaller the increase, the stronger your application looks. So if you are paying $1000 now and your new payment will be $1400, that’s probably okay if your housing ratio is not too high.
If you are paying $1000 a month now, and your new payment is going to $1800… and you have a fairly high housing ratio… we are going to look and see that you have been SAVING money every month at $1000. We can use that information as an offsetting factor / reason to make the loan!
If you have questions about Income Qualifications FHA Mortgage Loans in NC, and you are looking for the BEST Mortgage Rates – please call Steve and Eleanor Thorne, 919-649-5058. We are Professional Mortgage Planners with over 20 years of experience closing FHA Home Loans in NC!