The Quick Read: An income cap is a ceiling set as a percentage of your area’s median income, and it decides whether you can use certain assistance. Many buyers face up to three separate income tests: one for the first mortgage, one for the assistance, and one for repayment ability. The grant option we arrange has an AMI test, while the second-lien options carry no income limit beyond USDA’s own on a USDA first mortgage. Passing one test does not mean you pass the others.
Key Takeaways
- AMI means area median income, a county-level figure that scales with household size.
- Among the options below, only the grant has an AMI cap, at 140% of the area median. A qualifying category can replace that test.
- The forgivable and repayable seconds have no income cap, except USDA’s own limit when the first mortgage is USDA.
- Nobody has to be a first-time buyer. Repeat buyers qualify.
- All of it applies to a primary residence you will live in. Not a rental, not a second home.
What Does AMI Actually Measure?
AMI is the middle point of local family income. Half the families in an area earn more, half earn less. HUD calculates it every year for each metro area and non-metro county. HUD User builds the figure from American Community Survey data on median family income, and the base is a four-person household.
Two points matter here.
First, AMI is a county or metro number, not a city number. A suburb and its neighbor across a county line can sit under different limits.
Second, it differs from the median salary you see in news stories. It measures families, and it gets adjusted for household size.
HUD also builds its published limits in bands. The low-income band sits at 80% of the median, and the very-low band at 50%. HUD caps how much those limits can fall in a single year and applies extra adjustments in high-cost and low-income areas. So a program that says “80% of AMI” may land on a different dollar figure than a literal 80% of the median.
Programs that use AMI usually pick their own percentage. That is why the same buyer can clear one program and miss another. If you want the full menu of structures before going deeper, Lendmire’s down payment assistance programs page lays out the grant, forgivable and repayable shapes side by side.
Which Income Test Applies to Which Option?
The grant is often a strong option here with an AMI test of its own. The forgivable and repayable seconds have no income limit beyond USDA’s own on a USDA first mortgage. The first mortgage and your repayment-capacity are separate checks that still apply.
| Option | Own income cap? | Pairs with |
|---|---|---|
| Grant (nothing to repay) | 140% of AMI, or a qualifying category | FHA first lien |
| Forgivable second | None (USDA’s limit on USDA first liens) | FHA, USDA, HUD-184 |
| Repayable second | None (USDA’s limit on USDA first liens) | FHA, USDA, HUD-184 |
Across the wholesale programs Lendmire places files with, the grant carries the AMI test. The grant pairs with FHA first liens only. The seconds also pair with USDA and HUD-184 first liens.
Now the first mortgage underneath. FHA does not have a borrower income cap that we work with. The lender still needs to see enough income to repay the loan. USDA is different: its guaranteed loan limits applicants to roughly 115% of median household income, and the home must be a primary residence, per USDA Rural Development. More on that definition below, because “115%” is shorthand.
The third test is plain underwriting. The lender checks debt-to-income ratios and documents your income. For manual underwriting on FHA, the ratios are 31/43. Automated approvals often allow more, and the assistance options follow the automated finding.
How the Grant’s Income Test Works, Step by Step
The grant gives 2% or 3.5% of the purchase price toward the FHA minimum investment. Nothing is repaid. It is released at closing, with no lien, no payment and no interest. Credit floor is 620, and it is not offered in Washington.
Here is how the income test runs.
1. Find the county. The limit follows the property’s county, which may not be where you live now. Ask the lender which table they use.
2. Find the household-size limit. The four-person median gets scaled up or down for your household. Smaller households get lower caps. Larger ones get higher.
3. Apply the grant’s limit. The grant’s ceiling is 140% of the area median for your household size.
4. Count qualifying income. The lender documents it with paystubs, W-2s, traditional personal-income documentation and similar records.
5. Compare. At or below the ceiling, you pass. Above it, you check the categories.
Run it with percentages. Say your household income comes to 125% of the local median for your size. You are under the 140% line, so the income test is met. At 150%, you are over it. That is not the end of the road, and the categories below show why.
The grant also needs an HUD-approved homebuyer education course. You pay for it up front, and the cost is credited back at closing.
The Categories That Replace the Income Test
You can qualify for the grant without clearing the 140% line if you fit any one category. The list is wider than most buyers expect:
- A first responder: police, fire, public safety, paramedic or EMT, whether current, former or entering service.
- An educator.
- Medical personnel, including nurses, doctors, phlebotomists, health ambassadors, and hospital or Red Cross workers.
- A civil servant at the federal, state or local level.
- Military personnel, current, retired, volunteer or unpaid.
- A first-time homebuyer, meaning no ownership interest in a residential property in the three years before you apply.
- A buyer purchasing in an underserved census tract.
The first-time category has a quirk. A homemaker or single parent whose only past ownership was with a former spouse still counts.
Here is the point many buyers miss. First-time status is one door among several. It is not a requirement. A repeat buyer moving up can use the grant by income or by another category.
What Counts as Household Income?
Programs define income and household in different ways, and the definition can matter as much as the cap. Ask which one applies before you run your numbers.
Some general patterns:
- Wages and regular pay. These nearly always count. Bonuses and overtime usually count when they show a steady history.
- Self-employment. Lenders typically look at documented net business income, not what the business grossed.
- Other adults in the home. Some programs count every adult household member, even those not on the loan. USDA does exactly that.
- Repayment income. This comes from the people signing the loan. It is a different calculation from the eligibility income.
USDA’s method deserves its own paragraph. It decides eligibility on “adjusted annual income,” which is household income minus allowed deductions. Deduction categories include dependents, child care, an elderly household member, care for household members with disabilities, and medical expenses. Child care has to be documented and necessary for someone to work, look for work or attend school.
So gross income can sit above the line while adjusted income sits under it. Gross is not the number USDA tests.
Which AMI Table and Which County Apply?
The table in force on the date the program checks you is the one that counts. HUD updates limits each year, and USDA publishes its own table by county and household size. A file that missed the cap last season might pass this one, or the reverse.
Timing creates the odd cases:
- A mid-file update. If a new table lands while you are under contract, ask the lender which version they will apply.
- Data lag. HUD builds AMI from survey data and projects it forward, so published limits can trail what local incomes are doing today.
- Property versus residence. The county where you buy sets the limit. Where you rent now does not.
Do not rely on your own math to settle a borderline case. The lender confirms the table, and the answer controls.
Where the General Rule Breaks
Most explainers stop at “income must be under X% of AMI.” These edge cases are where files get decided.
USDA’s 115% is shorthand. The actual rule is a greater-of test. Moderate income is the greatest of 115% of U.S. median family income, 115% of the average of statewide and non-metro median family incomes, or 115/80ths of the area’s low-income limit. USDA publishes the result by county and household size in its income limit table. In lower-income counties, the national or state figure can set the ceiling, so the real cap runs higher than 115% of the local median.
Section 184 is its own animal. HUD-184 is a guaranteed loan for enrolled members of federally recognized tribes, Alaska Native entities, tribes and tribally designated housing entities, per HUD’s Section 184 lenders page. HUD’s budget justification for the Indian Housing Loan Guarantee Fund describes the program as not subject to income restrictions, though that document is older. A forgivable or repayable second on an HUD-184 first lien carries no income limit either. The lender still tests repayment ability.
Non-borrowers can move the number. An adult relative living in the home can push USDA household income over the line even though that person is not on the loan.
Not every public program has a cap. Urban Institute research found that most down payment assistance programs set an income cap, and that many reach well above the lowest income bands. Some have none at all. “My income disqualifies me” is often wrong.
A cap on one layer does not carry over. A first mortgage test and an assistance test can differ. You might clear one and miss the other.
Assistance does not stack. No option here can combine with another assistance program. A mortgage credit certificate is not allowed with the second-lien options.
If You Are Over the Cap
Work through this list in order. It is a decision path, not a rescue plan.
1. Check the categories. A teacher, nurse, firefighter or veteran can bypass the income test (140% of area median) on the grant.
2. Check the tract. A purchase in an underserved census tract also meets the grant’s test.
3. Look at the seconds. They are loans, and they come with credit floors of 640 and 660 respectively. The repayable second has a monthly payment and a balloon in year 10, so read it as a real loan.
4. Rethink the first mortgage. A USDA first lien brings USDA’s cap. An FHA or HUD-184 first lien does not bring one.
5. Recheck the household. Is every adult income really counted, and are USDA deductions documented?
6. Reconsider the property or county. A different county can mean a different limit.
If none of these fits, assistance may not be the right tool for this purchase. A repayable second adds debt. If your income is strong enough that you sit over the grant’s line, a plain FHA loan with your own savings may be the cleaner path.
What the Choice Looks Like in Practice
Three buyer pictures, no dollar figures.
The renter with thin savings, income under the line. A household sits at roughly 110% of the area median for its size. It meets the grant’s income test, has a 650 credit score, and is buying with an FHA first lien. The grant covers 2% or 3.5% of the price toward the FHA minimum investment, with nothing to repay. Homebuyer education is required. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
The nurse over the line. A single-income household sits at 150% of the area median. The income test fails, but a medical worker is a qualifying category. The grant is still on the table, subject to the credit floor and underwriting.
The repeat buyer moving up. This household earns well above 140% and has no qualifying category. The grant is out. A forgivable or repayable second may fit, if credit is at least 640 or 660. The forgivable one carries no interest and no payment. It is forgiven after 36 or 60 on-time first-lien payments. The repayable one is a loan with a balloon.
Tax treatment can depend on your situation; buyers should speak with a qualified tax professional before relying on any deduction or credit.
The Layer Underneath: FHA Basics
Every option above sits on a government-backed first lien. For FHA, the minimum investment is 3.5% of the lesser of price or appraised value, which gives 96.5% first-lien leverage. An upfront mortgage insurance premium is financed into the loan, and annual mortgage insurance follows by tier. Current one-unit FHA loan limits vary by county. The grant is not offered on high-balance first liens, so county matters twice.
Key Terms Defined
AMI (area median income): The midpoint family income for a county or metro area, published by HUD and scaled by household size.
Income cap: The highest household income a program allows, usually written as a percentage of AMI.
Adjusted annual income: USDA’s eligibility income, which is household income minus allowed deductions.
Forgivable second lien: A second loan with no interest and no payment that is forgiven after a set number of on-time first-lien payments.
Balloon payment: A lump sum due on a set date, which for the repayable second falls in year 10.
First lien: The main mortgage, which gets repaid first if the home is sold.
Frequently Asked Questions
Does every down payment assistance program have an income limit?
No. Among the options Lendmire arranges, only the grant has an AMI test. The forgivable and repayable seconds have none, except USDA’s own limit when the first mortgage is USDA. Public programs vary widely, and research shows a large share of them cap income. Check the specific program before ruling yourself out.
Does my income have to be below 80% of AMI?
Not for the options here. The grant’s test is 140% of area median income, or a qualifying category. The 80% figure is a HUD band, and some public programs use it. It is not a universal rule.
Which county’s limit applies if I live in one county and buy in another?
The property’s county sets the limit. The lender confirms the table and household-size column they apply.
Do I have to be a first-time buyer?
No. Repeat and move-up buyers qualify. First-time status is only one of the grant’s qualifying categories. The assistance is for a primary residence you will occupy.
If I qualify for the first mortgage, do I qualify for the assistance?
Not automatically. They are separate tests with separate caps and credit floors. The grant requires 620, the forgivable second 640 and the repayable second 660, subject to program guidelines and full underwriting.
Next Step
If you are buying a primary home and want to see whether a down payment assistance option fits your file, Lendmire can help you compare the grant, forgivable and repayable structures alongside an FHA, USDA or HUD-184 first mortgage. Lendmire is a mortgage broker that arranges these through wholesale lenders, subject to program guidelines and full underwriting. This is not a commitment to lend, and programs change.
Investors who want the broader program framework can review how DSCR loans work.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving home buyers in 16 states. Down payment assistance programs are arranged with FHA, USDA and HUD-184 first liens through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
2. USDA Rural Development: Single Family Housing Guaranteed Loan Program
3. Urban Institute: Expanding Down Payment Assistance Awareness
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Use Down Payment Assistance on a 2-4 Unit Home · Can Any Lender Offer Down Payment Assistance? · How to Document a Gift Alongside Down Payment Assistance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.