- A salary is a fixed payment provided to an employee at regular intervals, such as on a weekly, monthly or annual basis. According to FHA Outreach: "In most cases, a borrower's income is limited to salaries or wages." FHA analyzes the salary of each person obligated on the loan to determine whether it is effective -- likely to continue -- for at least the first three years of the mortgage. The lender must verify and document all effective income through pay stubs, income taxes, W-2s or an employment verification form.
- "FHA's mortgage programs do not typically have maximum income limits for qualifying, although you must have sufficient income to qualify for the mortgage payment and other debts," says FHA Outreach. FHA limits the amount a buyer can borrow based on home prices in their area and the amount of debt they can carry in relation to their income -- the debt to income ratio. Rather than cap salaries, FHA caps the amount one can pay for a home and how much of their income they can put toward the monthly payment. In 2011 the maximum loan cap is $729,750 and the debt ratio is 31 percent.
- "Income limits may be present when qualifying for down payment assistance or other secondary financing programs," says FHA Outreach. Down payment assistant programs, or DAPs, include those funded by HUD or HUD-approved organizations. Down payment assistance helps very low, low- or moderate-income borrowers buy a home. It is used in conjunction with an FHA loan in the form of low- or no-interest financing of the 3.5 percent down payment required by FHA.
- In addition to salary, FHA considers the borrower's overtime and bonus income. The lender establishes an average for the earnings for the past two years. The employer providing overtime or bonus income must verify that it is likely to continue. The employer provides this information on a verification of employment form provided by the lender.
Part-time and seasonal employment that is uninterrupted for the past two years may be added to the borrower's salary for qualifying purposes. "Many low and moderate income families rely on part-time and seasonal income for day to day needs, and lenders should not restrict consideration of such income," says FHA Outreach. - Retired borrowers or those who plan to retire during the initial three-year period of the FHA-insured loan must document retirement benefits social security benefits or other payments expected during retirement, to qualify with this type of salary.
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