What criteria does the federal government use to define low-income borrowers?

The federal government defines low-income borrowers primarily based on their income relative to the median income of the area in which they reside. Specifically, a borrower is considered low-income if their income falls below 80% of the median income for their area. This criterion is used to determine eligibility for various housing and financial assistance programs aimed at helping those who may struggle to secure traditional financing options.

This definition is crafted to address the varying economic conditions across different regions, ensuring that assistance targets those who need it most within their specific community context. It is particularly relevant in programs such as those administered by the Department of Housing and Urban Development (HUD), which highlights the importance of local income benchmarks.

The focus on area median income rather than a national average or government assistance alone allows for a more tailored approach in identifying low-income individuals, addressing local cost of living variations and housing market dynamics. This approach helps to ensure that resources are allocated efficiently to those in real need, promoting equity in housing finance.