For most first-time buyers, there is no income limit for first-time home buyers at all. FHA loans, VA loans, and standard conventional mortgages qualify you based on credit, debt, and ability to repay, with no ceiling on what you can earn. Income caps only appear on a narrower set of subsidized programs built to help lower-income households: Fannie Mae’s HomeReady, Freddie Mac’s Home Possible, USDA rural housing loans, state down payment assistance funded by tax-exempt mortgage bonds, and the Mortgage Credit Certificate program.
Mortgages With No Income Cap
The three loan types that carry most first-time buyers have no maximum income requirement. FHA loans look at your debt-to-income ratio and credit profile but set no earnings ceiling. VA home loans are available to eligible veterans and service members regardless of income level.1U.S. Department of Veterans Affairs. VA Home Loan Entitlement and Limits Standard conventional mortgages backed by Fannie Mae and Freddie Mac impose no area median income requirement either. A household earning $300,000 can get any of these loans just as readily as one earning $60,000, assuming the rest of the file supports it.
So if your income disqualifies you from a subsidized program, you’re not locked out of buying a home. You lose access to specific perks like reduced mortgage insurance, lower rates, or zero down payment, but the broader mortgage market is still open to you.
How Area Median Income Sets the Threshold
Every income-restricted homebuyer program ties its cap to the Area Median Income for the location where you’re buying. HUD publishes updated AMI figures each year using data from the Census Bureau’s American Community Survey, with a rule that no area’s limits swing more than 5 percent up or down from the prior year.2Federal Register. Changes to the Methodology Used for Calculating Section 8 Income Limits Under the United States Housing Act of 1937 Two households with identical incomes can get different answers depending on where the property sits. A family earning $90,000 might exceed the cap in a low-cost rural county but fall well under it in an expensive metro area.
Household size also shifts the number. HUD’s income categories use a sliding scale where the cap increases as more people live in the home.3eCFR. 24 CFR 5.603 – Definitions You can look up the specific AMI for any county or metro area through HUD’s online database before you start shopping for programs.
Programs also differ in whose income they count. Some measure only the borrower’s qualifying income. Others count every dollar earned by every adult in the house. That difference decides more applications than most buyers expect.
HomeReady and Home Possible: 80 Percent of AMI
Fannie Mae’s HomeReady and Freddie Mac’s Home Possible are the two main conventional programs with income restrictions. Both cap qualifying income at 80 percent of the AMI for the property’s location.4Freddie Mac Single-Family. Home Possible In exchange, borrowers get reduced mortgage insurance costs and down payments as low as 3 percent.
These programs measure only the borrower’s qualifying income, not total household earnings. If you apply for the mortgage alone and a spouse or roommate earns additional money, those earnings generally don’t count toward the 80 percent limit as long as that person isn’t on the loan application.5Fannie Mae. HomeReady Mortgage If your income exceeds the cap even slightly, your lender will move you to a standard conventional product. You still get a loan; you just lose the subsidized pricing.
First-time buyers using either program must complete a homebuyer education course before closing. Both agencies accept online courses, which typically take a few hours and cost a modest fee. Fannie Mae’s lookup tool lets you check income eligibility by entering a specific property address.
USDA Loans: 115 Percent of AMI, Whole Household Counted
USDA loans are the strictest on income because they count every adult in the household, not just the people on the mortgage. The Guaranteed Rural Housing Program sets its income ceiling at the “moderate income” level, generally 115 percent of the area median family income.6eCFR. 7 CFR Part 3555 – Guaranteed Rural Housing Program The actual limit in a given county can be higher than a straight 115 percent calculation because the formula also considers statewide median income, which makes the threshold more generous in areas where local wages lag behind the state average.
The whole-household count is where most applicants get tripped up. A spouse’s income, an adult child living at home, a parent staying with you: all of it gets added to the total. If the combined adjusted income of every adult in the house exceeds the moderate-income limit, the application is denied no matter how little the actual borrower earns. Lenders verify every household member’s earnings during underwriting.
USDA does allow deductions that can bring your adjusted income below the cap. Households with an applicant who is 62 or older or has a disability receive a flat annual deduction. Unreimbursed child care costs for children 12 and under can also be subtracted when the care enables a household member to work or attend school.7USDA Rural Development. Determining Adjusted Income Those deductions are worth calculating carefully; they can be the difference between qualifying and being turned away.
USDA also runs a separate Direct Loan Program for very low and low-income borrowers with income caps closer to 50 to 80 percent of AMI, but its funding pool is smaller and access is more limited.
State Down Payment Assistance and Mortgage Credit Certificates
State Housing Finance Agencies fund down payment assistance and below-market mortgages using tax-exempt mortgage bonds authorized under federal law. The federal statute governing those bonds sets the income limits every participating state must follow.8Office of the Law Revision Counsel. 26 USC 143 – Mortgage Revenue Bonds Qualified Mortgage Bond and Qualified Veterans Mortgage Bond
The baseline cap is 115 percent of area median family income for families of three or more. Smaller households face a tighter limit: fewer than three people must earn 100 percent or less of AMI to qualify.8Office of the Law Revision Counsel. 26 USC 143 – Mortgage Revenue Bonds Qualified Mortgage Bond and Qualified Veterans Mortgage Bond The family-size adjustment is written into federal law and applies in every state.
The limits loosen in census tracts the government has designated for targeted investment due to economic distress. In those areas the cap rises to 140 percent of AMI for families of three or more, and 120 percent for smaller households.8Office of the Law Revision Counsel. 26 USC 143 – Mortgage Revenue Bonds Qualified Mortgage Bond and Qualified Veterans Mortgage Bond The higher cap is meant to draw buyers into neighborhoods that need investment, and it noticeably expands who qualifies.
A Mortgage Credit Certificate, which lets you claim a federal tax credit equal to a percentage of the mortgage interest you pay each year, uses the same income and purchase price rules because the federal statute requires it.9Office of the Law Revision Counsel. 26 USC 25 – Interest on Certain Home Mortgages The same AMI percentages, family-size adjustments, and targeted-area thresholds apply. Your income is tested at the time of purchase, not every year afterward. If your earnings rise above the threshold after closing, you keep the credit.
Purchase Price Cap
Income isn’t the only ceiling on these bond-funded programs. The same federal statute restricts how expensive the home can be. In most areas the purchase price can’t exceed 90 percent of the average area purchase price for single-family homes. In targeted areas the ceiling rises to 110 percent. A buyer who meets the income cap but shops above the price limit will be disqualified just as surely as one who earns too much.
Who Counts as a First-Time Buyer
The federal definition is more generous than most people expect. Under the rules governing tax-exempt mortgage bonds, you qualify as a first-time buyer if you had no ownership interest in a principal residence during the three years before your new mortgage closes.8Office of the Law Revision Counsel. 26 USC 143 – Mortgage Revenue Bonds Qualified Mortgage Bond and Qualified Veterans Mortgage Bond Someone who owned a home a decade ago and has been renting since qualifies. So does someone who owned investment property but never lived in it as a primary residence. Many state assistance programs and the Mortgage Credit Certificate program use this same three-year definition.
HomeReady, Home Possible, and USDA loans don’t actually require you to be a first-time buyer at all, though first-time buyers using HomeReady or Home Possible must complete the homebuyer education course. For those three programs, the income cap is the gate, not your purchase history.
The Recapture Tax on Subsidized Loans
One consequence of taking a subsidized loan through a qualified mortgage bond or a Mortgage Credit Certificate rarely comes up until it matters. If you sell the home within nine years, you may owe a recapture tax to the IRS.10Internal Revenue Service. Instructions for Form 8828 Recapture of Federal Mortgage Subsidy The tax is designed to claw back part of the federal subsidy from homeowners whose finances improved significantly after they bought.
Three conditions must all be true for recapture to apply: you sold or disposed of the home within nine full years of closing, your income grew substantially above the qualifying limit you originally met, and you realized a gain on the sale. Miss any one of those and you owe nothing. The qualifying income threshold rises each year you hold the home, so moderate income growth usually won’t trigger it. After nine full years, you’re exempt regardless of income or gain.10Internal Revenue Service. Instructions for Form 8828 Recapture of Federal Mortgage Subsidy Your lender or bond issuer should have given you a written notice at closing with a table of adjusted qualifying income figures by family size and years held; you’ll need it if you file Form 8828 in the year you sell.