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Why Does Area Median Income (AMI) Matter?

Why Does Area Median Income (AMI) Matter?

Are you looking to purchase a home?  Are you looking for low-income programs you might qualify for?  A great tool to have is to know your Area Median Income before you start!  We’ll show you how to find that information and see what programs may work for you!

What is Area Median Income?

Area Median Income (AMI) is a database of income amounts that lenders may use to determine if a borrower qualifies for low-income programs.  The Department of Housing and Urban Development (HUD) calculates these amounts annually.

The amounts are determined by a median average of local households.  This means that half of the households earn more, and half of the households earn less.  The average uses the gross income from the households in the area – so it is based on total income received before any payroll or taxes deductions.

What’s considered low income for housing?

If your income is 80% or less than your local Area Median Income amount for your household, it is considered low-income.

If your income is 50% or less than your local Area Median Income amount for your household, it is considered very low-income.

If your income is 30% or less than your local Area Median Income amount for your household, it is considered extremely low-income.

These categories may determine priority status for consideration of housing help programs!

How do you calculate your AMI?

To find your Area Median Income, Fannie Mae’s Area Median Income Lookup Tool has handy map or search options that allows you to select your area by clicking on the map, or by entering your address.

What does 80% of AMI mean?

Programs specifically for low-income borrowers typically start at the threshold of 80% of your Area Median Income.

For instance, the Area Median Income for Anaheim, California is $86,100.  To be eligible for some of the low-income programs, your household income cannot be greater than $68,880 per year.

Find this by multiplying the Area Median Income of $86,100 by .80 (80%) to calculate the $68,880 maximum.

$86,100 x .80 = $68,880

The same calculation applies for determining if you meet the 50% threshold:

$86,100 x .50 = $43,050

Area Median Income homebuyer

What are some low-income mortgage programs that Area Median Income is used for?

Depending on your placement in the Area Median Income table, certain low-income programs may be available to offer you favorable mortgage options.  Here are a few possible programs!

Fannie Mae HomeReady

Fannie Mae’s HomeReady program uses the Area Median Income to determine if borrowers meet the 80% or less threshold for possible mortgage help!  This program is available to first-time or repeat homebuyers who have a credit score of 620 or higher.  Benefits of this program include:

  • down payment as low as 3%
  • down payment and closing costs can be funded by gifts and grants
  • reduced mortgage insurance requirements
  • immediate appraisal orders from lenders
  • no geographic restrictions on loan amounts

HFA Preferred

Fannie Mae’s conventional loan program, Housing Finance Agencies (HFA) may also be an option to those who qualify at 80% of the Area Median Income in their area!  This program also offers similar benefits as the HomeReady program and can be a great resource for funding mortgages to include manufactured housing!

USDA Guaranteed Loan

The United States Department of Agriculture (USDA) has a program that encourages families to purchase homes in rural areas.  The Guaranteed Loan program allows household income of up to 115% of the Area Median Income!  These loans may only be available for certain geographical areas.

Some details of this program are:

  • possible 100% financing!  Zero down!
  • agree to use the property as a primary residence
  • be a US citizen, a non-citizen national, or a Qualified Alien

What if I’m just looking to rent?

The Area Median Income can also be helpful in determining if you may be eligible for housing vouchers!  Many areas have zoning requirements to ensure that new construction projects include a certain percent of units that would be available to those who qualify as low-income per Area Median Income figures.

Assisted living programs that use the Area Median Income to determine eligibility include:

  • Public Housing
  • Section 8 project-based
  • Section 8 Housing Choice voucher
  • Section 202 housing for elderly
  • Section 811 housing for persons with disabilities

…and more!

Your status on the Area Median Income list may allow you to receive priority assistance in finding a place to live.  For instance, many families who qualify at 30% or less of the Area Median Income for their area, are moved up on waiting lists to obtain housing through these programs.

After 27 years in law enforcement and state Veterans Affairs agencies, I found myself working from home and looking for dollar-stretching resources. Government programs can be notoriously difficult to navigate and I'm happy to lend my experiences to make this easier for others!