There is no single income limit for first-time home buyers, because most mortgage programs don’t impose one at all. FHA, VA, and standard conventional loans qualify you on your ability to repay, not on earning below a specific number. Income caps only apply to a narrower set of subsidized programs built for lower- and moderate-income households: Fannie Mae’s HomeReady, Freddie Mac’s Home Possible, USDA rural housing loans, and state down payment assistance funded by tax-exempt mortgage bonds. If you earn too much for those programs, you still have full access to the broader mortgage market.
Loans With No Income Cap
The three mortgage types most first-time buyers actually use set no ceiling on earnings. FHA loans look at your debt-to-income ratio and credit, not an income maximum. VA home loans are available to eligible veterans and service members regardless of what they earn.1U.S. Department of Veterans Affairs. VA Home Loan Entitlement and Limits Standard conventional mortgages backed by Fannie Mae and Freddie Mac have no area median income requirement either. A household earning $300,000 can get an FHA or conventional loan on the same terms as one earning $60,000, assuming the rest of the application holds up.
The income-restricted programs below offer real perks: reduced mortgage insurance, lower rates, or very low down payments. But earning too much for them doesn’t lock you out of homeownership. It just moves you to a standard product.
HomeReady and Home Possible: 80 Percent of AMI
Fannie Mae’s HomeReady and Freddie Mac’s Home Possible are the main conventional loan programs with an income restriction. Both cap qualifying income at 80 percent of the Area Median Income for the property’s location.2Freddie Mac Single-Family. Home Possible In exchange, you get reduced mortgage insurance and down payments as low as 3 percent.
These programs count only the borrower’s qualifying income, not everyone in the household. If you apply alone and a spouse or roommate earns separately, that income generally doesn’t count toward the 80 percent limit as long as that person isn’t on the loan.3Fannie Mae. HomeReady Mortgage First-time buyers using either program must complete a homebuyer education course before closing; Fannie Mae and Freddie Mac both accept online courses. If your income exceeds the cap, your lender moves you to a standard conventional loan. You still close. You just lose the subsidized pricing.
Neither program actually requires that you be a first-time buyer, though first-time buyers who use them have to take the education course.
USDA Loans: 115 Percent, Counted Across the Whole Household
USDA loans are the most restrictive, 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.4eCFR. 7 CFR Part 3555 – Guaranteed Rural Housing Program The actual county limit can run higher than a straight 115 percent calculation, because the formula also looks at statewide median income and gives more room in areas where local wages trail the state.
The household-wide count trips people up. A spouse’s income, an adult child at home, a parent staying temporarily — all of it gets added. If combined adjusted income across every adult in the house exceeds the moderate-income limit, the application fails even if the actual borrower earns very little. Lenders verify every household member’s earnings during underwriting.
USDA does allow deductions that can bring adjusted income under the cap. Households with an applicant 62 or older, or with a disability, get a flat annual deduction. Unreimbursed child care costs for children 12 and under can be subtracted when the care lets a household member work or attend school.5USDA Rural Development. Determining Adjusted Income These are worth running carefully; they can be the difference between qualifying and being turned away. USDA also runs a separate Direct Loan Program with caps closer to 50 to 80 percent of AMI, offering subsidized interest rates to very low- and low-income borrowers.
State Down Payment Assistance: 100 or 115 Percent of AMI
State Housing Finance Agencies run assistance programs funded by tax-exempt mortgage bonds authorized under federal law. These typically take the form of grants, forgivable second mortgages, or below-market first mortgages. The federal statute sets income limits every participating state has to follow.6Office 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: families with fewer than three people must earn 100 percent or less of AMI.6Office of the Law Revision Counsel. 26 USC 143 – Mortgage Revenue Bonds Qualified Mortgage Bond and Qualified Veterans Mortgage Bond That family-size adjustment is in federal law and applies in every state.
In census tracts the government has designated as targeted areas for economic reasons, the cap rises to 140 percent of AMI for families of three or more, and 120 percent for smaller households.6Office of the Law Revision Counsel. 26 USC 143 – Mortgage Revenue Bonds Qualified Mortgage Bond and Qualified Veterans Mortgage Bond The higher threshold is intended to draw buyers into neighborhoods that need investment, and it meaningfully expands who qualifies.
Price Limits Travel With Income Limits
Income isn’t the only cap on 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, that ceiling rises to 110 percent. The average comes from actual sales over the most recent 12-month period with reliable data. A buyer who meets the income cap but shops above the price limit is disqualified just as surely as one who earns too much.
How AMI and Household Size Shift the Number
Nearly every income-restricted program ties its cap to the Area Median Income for the location you’re buying in. HUD publishes updated AMI figures each year using Census Bureau American Community Survey data, with a smoothing rule so that no area’s limits swing more than 5 percent up or down from the prior year.7Federal Register. Changes to the Methodology Used for Calculating Section 8 Income Limits Under the United States Housing Act of 1937 Two borrowers with identical paychecks can get different answers depending on where the property sits. The same $90,000 might blow past the cap in a low-cost rural county and sit comfortably under it in an expensive metro.
Household size moves the number too. HUD’s income categories use a sliding scale where the cap rises with the number of people in the home.8eCFR. 24 CFR 5.603 – Definitions You can look up the specific AMI for any county or metro area through HUD’s online database before picking a program.
Who Counts as a First-Time Buyer
The federal definition is more generous than most people assume. Under the mortgage bond rules, 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.6Office 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 rented since qualifies. Someone who owned investment property but never lived in it as a primary residence qualifies. Many state assistance programs and the Mortgage Credit Certificate program use this same three-year rule. HomeReady, Home Possible, and USDA don’t require you to be a first-time buyer at all; the income cap is the gate.
Mortgage Credit Certificates
A Mortgage Credit Certificate gives you a federal tax credit equal to a percentage of the mortgage interest you pay each year, cutting your tax bill directly for as long as you live in the home. The income and purchase price limits mirror the mortgage bond rules above because the federal statute requires it.9Office of the Law Revision Counsel. 26 USC 25 – Interest on Certain Home Mortgages Same AMI percentages, same family-size adjustments, same targeted-area thresholds.
Your income is tested at the time of purchase, not every year after. If your earnings climb past the qualifying threshold later, you keep the credit. You don’t re-qualify annually. The one scenario where rising income creates a problem is selling within the first nine years, which can trigger a separate tax.
The Recapture Tax if You Sell Early
If you took a subsidized mortgage through a qualified mortgage bond or used a Mortgage Credit Certificate, selling the home within nine years can mean a federal recapture tax.10Internal Revenue Service. Instructions for Form 8828 Recapture of Federal Mortgage Subsidy It’s meant to claw back some of the subsidy from homeowners whose finances improved significantly after they bought.
Three conditions must all be true for the tax 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 condition and you owe nothing. The income threshold rises by a compounding factor each year you hold the home, so moderate income growth over several years usually won’t trigger it. Sell after nine full years and you’re exempt regardless of income or gain.10Internal Revenue Service. Instructions for Form 8828 Recapture of Federal Mortgage Subsidy
The federally subsidized amount in the calculation equals 6.25 percent of the highest outstanding balance on your subsidized loan. Your lender or bond issuer should have given you a notice at closing with a table of adjusted qualifying incomes by family size and years held. You’ll need that document to file Form 8828 with the IRS in the year you sell. Refinancing without selling doesn’t trigger recapture on its own, but a later sale inside the nine-year window still can.