FHA Income Guidelines
FHA requires that the lender document the employment history for the most recent 2 years of employment for all borrowers. If the borrower has any gaps in employment a "gap letter" will be required to explain the period of time the borrower was out of work. There are a few exceptions to the 2 year history. If the borrower was in school obtaining a degree and then finds a job in the same line of work as the college degree, this is usually acceptable to the lender. FHA debt ratio guidelines are 31/41%. These debt ratios can be exceeded with compensating factors.
Other types of income that can be used for qualifying under an FHA mortgage are alimony, child support, interest income, pension, disability and retirement income. All incomes must be documented to show that it will continue for the next 3 years to be used for qualifying. If the income will cease before the 3 year period, it cannot be used in calculating the debt ratios, but can be used as a compensating factor.
Below is an overview of a few of the different types of income that can be used in qualifying for an FHA home loan. Please note that there are other types of income not disclosed below that may be used in qualifying for an FHA mortgage loan. If you are not sure if you have income that can be used for qualifying for an FHA loan, please call me at 818-920-1600 to discuss your personal situation or click here to complete our short loan application.
Overtime and Bonuses: Overtime and bonus income can be used if it has been received for the previous 2 year period. An average of the overtime or bonus income will be calculated for the previous two years. A copy of the previous W-2's for 2 years and a current paystub will be required. Commission Income: Commission income will be averaged for the previous 2 year period. Copies of the last 2 years of tax returns (Federal Only) will be required along with a current paystub to show that the borrower is currently receiving commissions. Any un-reimbursed expenses showing on the tax returns will be deducted from the borrowers income prior to calculating the 2 year average. Self Employment Income: A borrower with greater than a 25% ownership in a business is considered self employed. The borrower must have been self employed for the past 2 years to use the income for qualifying. The lender will average the income for that period. A copy of complete individual tax returns including all schedules will be required. If the business is a Corporation or Partnership, a copy of 2 years business tax returns will also be required. Social Security and Pension Income: A copy of the Award Letter will be required for verification of income. In most cases, the income can be "grossed up" by the amount of tax savings received on this income up to a maximum of 25%. Interest and Dividend Income:Interest and dividend income showing on the tax returns can be used for qualifying as long as there is a likelihood that it will continue for the next 3 years. If the down payment funds will be coming from any of the accounts that are being used for interest or dividend income, then the income will need to be adjusted accordingly. Rental Income: Rental income received for properties owned by the borrower can be used in qualifying for a new home loan. A copy of the borrower's tax returns will be required. Any positive rental income will be used as income, but if the property shows a loss, the amount of the loss will be used as a liability. There are other guidelines regarding rental income. Please call me at 818-920-1600 to discuss your current situation. Trust Income: Trust income may be used if it can be documented that the payments are guaranteed and will be constant for the next 3 years. A copy of the Trust Agreement and the trustees' statement confirming the current status of the account. Please note: The above information is just an overview of the income guidelines used for underwriting an FHA mortgage loan, there may be other restrictions or guidelines that are not stated above. If you would like to discuss your personal situation, please E-mail or call us at 818-920-1600.Contact us today at 818-920-1600.