By RMM Team

Calculate Income Limits Using Area Median Income

Income limits are used to determine whether or not a home buyer is eligible for certain mortgage programs, including down payment assistance programs or incentives that can help make home buying more affordable. It identifies the maximum income level set by each housing authority for its program participants, and varies from county to county across the US. Often, the tool used to establish this maximum income level is often called Area Median Income, or AMI.

What is AMI?

AMI, short for Area Median Income, is a numeric representation of a home buyer’s economic status, relative to other families of the same size living in the area. The federal government releases annual Area Median Income (AMI) figures for every county in America, which are used by organizations like HUD to determine eligibility for assistance programs.

How is AMI calculated?

Well, let’s break it down.

The median identifies a number that falls in between two or more other values. Simply put, it tells us where the "halfway mark" is within an ordered set.

The gross income of a household refers to the total amount earned by its members, before taxes and other deductions are taken out.

So, if you were to take the gross household income of all the residents in your city and line them up from lowest to highest, the Area Median Income would be the number that falls smack dab in the middle. 

As AMI is calculated, there are three umbrellas under which a prospective borrower could fall: Low Income (80% AMI), Very Low Income (50% AMI), and Extremely Low Income (30% AMI). Where the buyer falls on this spectrum can determine whether or not they are eligible for certain programs and down payment assistance options.

What is the difference between Area Median Income (AMI) and Median Family Income (MFI)?

Truth be told: there's not one, necessarily. Area Median Income (AFI) and Median Family Income (MFI) are sometimes used interchangeably, so you might hear it referred to when talking about income limits with your lender. The only real difference between the two is that AMI is the more widely used term, while MFI is used more in the context of housing programs reserved for very low-income households. 

Family Income vs. Household Income

It’s sometimes assumed that “family income” and “household income” are interchangeable terms. When it comes to home loans however, understanding the difference between the two is important because it can impact your eligibility for certain loan programs. “Household Income” refers to the gross income of all persons residing in the home over a certain age, regardless of relation. A household can refer to a singular individual who lives alone or multiple families residing together in the same home.  “Family Income” on the other hand refers only to the earnings of two or more related individuals (whether by birth, marriage, or adoption) who reside together. Of course the context and definition of “household income” can vary based on the program, location, and specific lending situation.

How can I find the AMI for my area? 

You can look up the AMI for your area using Fannie Mae’s AMI lookup tool here: [*or internal RMM link if/when available].


Why it’s important: 

You may be wondering why it even matters how income limits are calculated and how it’s relevant to you, as a home buyer. That’s fair…and here’s why: Certain loan programs, like HomeReady and Home Possible, along with some state housing agency loans, have income limit restrictions based on AMI. If your household income meets the restrictions, you can use these programs – if not, you wouldn’t be eligible to do so.

Now you know how it works and how to calculate yours, you’ll be able to not only explore all of your options, but can trust that they’re more accurate as well.

The gist of it: 

  • AMI is simply a numeric representation of your financial status relative to those who also live in the area that helps to establish income limits for certain loan options.
  • Not every homebuyer needs to know their AMI, but it can be helpful when determining whether or not you could be eligible for down payment assistance programs and other incentives that can make home buying more attainable.
  • Household income and family income are separate calculations. While most loan programs consider household income, this isn’t always the case. It’s always a good idea to confirm with your loan officer if you’re unsure.


Blog Summary: Area Median Income is a critical element of real estate pricing that helps determine what home buyers can afford. This article will explain how it's calculated and where you can find more information about this important metric.


Tags: Area Median Income, Income Limits, Down Payment Assistance 

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