FHA Loan Income Rules to Consider Before Applying
April 18, 2023
Not all income counts, and some income must be earned for a minimum amount of time before it will be counted toward your gross income for the purpose of qualifying you for a loan.
There are rules for your main job or primary employment, there are rules for the lender when it comes to any projected income you feel you are likely to earn, and there are rules for counting part-time income. What do you need to know about these rules before you fill out a loan application?
FHA Loan Rules for Income
HUD 4000.1, the FHA Single-Family Lender’s Handbook, has instructions for the lender to review hourly income, salary, and part-time income. Your participating FHA lender is responsible for examining earnings from the home loan applicant’s “primary employment” which is defined in the rule book as being “the Borrower's principal employment” unless some or all of that income falls within a specific category such as part-time work, overtime, bonuses, etc.
FHA loan applicants who earn a salary will have their current pay evaluated. “For employees who are salaried and whose income has been and will likely be consistently earned, the Mortgagee must use the current salary to calculate Effective Income.”
Some borrowers want to know if a projected pay raise might be included in the income calculation. For FHA purchase loans, such projected income is likely not to be used. What you are actually earning will be the important figure at application time.
Hourly Pay Rules
And what about those who may have hourly pay instead of a salary? HUD 4000.1 has a section addressing income requirements for borrowers with hourly employment. “For employees who are paid hourly, and whose hours do not vary, the Mortgagee must consider the Borrower's current hourly rate to calculate Effective Income.”
The rulebook adds that for employees who are paid hourly and whose hours vary, the lender must average the income “over the previous two years. If the Mortgagee can document an increase in pay rate the Mortgagee may use the most recent 12-month average of hours at the current pay rate.”
Part-Time Income
And what does HUD 4000.1 say about part time income? “Part-Time Employment refers to employment that is not the Borrowers primary employment and is generally performed for less than 40 hours per week” and FHA loan rules allow your lender to use part-time income to qualify for a home loan.
This is true when, “the Borrower has worked a part-time job uninterrupted for the past two years and the current position is reasonably likely to continue.” And FHA loan rules for overtime and bonuses fall into a similar requirement; such income must have been earned for at least two years before it can be considered stable and reliable income.
If you aren’t sure how these rules may affect your ability to get a home loan approved, talk to a loan officer. It pays to know what your lender expects to see from a home loan application.
------------------------------
RELATED VIDEOS:
Know What's On Your Credit Report
FHA Loans Have Credit Requirements
Help Is Available With Down Payment Grants
FHA Loan Articles
October 31, 2024When buying a home for the first time, it helps to know how long the process can take. How do you know if your appraisal report is delayed if you don’t know how long the FHA allows for the process to be completed? How long does it take to get from the final offer to closing day? A “typical” FHA loan process may take up to 45 days from start to finish. Several factors can influence this timeline.
October 30, 2024Just because an FHA loan is designed to be more lenient with FICO scores and require a lower down payment doesn’t mean the house you buy with that loan is less than ideal. Did you know that FHA loans have minimum property standards to ensure the home is safe and livable? Those standards require the home to have an “economic life” for the entire term of the loan so you can freely sell the property later on if you choose to do so.
October 29, 2024Buying a home with an FHA mortgage is a major life decision, and preparation is essential before you start house hunting or consider making an offer on a property.
How to get started? In the early stages, establishing your budget and how much work you need to do on your credit is key. But once you have gotten past the initial phase of that planning you’ll want to consider the house itself and what you want from it.
October 25, 2024Mixed-use properties combine residential and commercial spaces. Some borrowers applying for FHA home loans want to know if purchasing such a property using an FHA single-family home loan is possible. The FHA does allow the use of its loans for mixed-use properties, but certain conditions must be met.
October 24, 2024Buying your first home is a major milestone. If you use an FHA mortgage to buy your home, you’ll have two types of insurance to consider. One type is the FHA-required mortgage insurance premium, which is paid for 11 years or the loan's lifetime, depending on your down payment, loan term, and other variables.
