December 27, 2012
From time to time we get questions about FHA loans including variations on the commonly asked, “How long do I have to spend on the job to get an FHA loan?”
The short answer is that FHA loan rules require the lender to verify at least two years of employment, though not necessarily two years with the SAME employer.
According to HUD 4155.1 Chapter One Section B, “The lender must obtain a Verification of Employment (VOE), and the borrower’s most recent pay stub” as part of this verification. But there are alternatives to this; FHA loan rules say “As an alternative to obtaining a written VOE, the lender may obtain the borrower’ s:
• original pay stub(s) covering the most recent 30-day period, and
• original IRS W-2 forms from the previous two years. (Note: Any copy of the IRS W-2 not submitted with the borrower’s tax return is considered an “original”. The original may be photocopied and returned to the borrower.)”
FHA loan rules add that the lender is “required to verify the applicant’s employment history for the previous two years. However, direct verification is not required if all of the following conditions are met:
• the current employer confirms a two-year employment history (this may include a pay stub indicating a hiring date)
• the lender only uses base pay (no overtime or bonus pay) to qualify the borrower and
• the borrower signs Form IRS 4506 or Form IRS 8821 for the previous two tax years.”
What about situations where the FHA loan applicant hasn’t been with the same employer for the last two years? FHA rules have the answer in HUD 4155.1 Chapter One Section B:
“If the borrower was not employed with the same employer for the previous two years, and/or the above conditions cannot be met, the lender must verify the most recent two years of employment history by obtaining
• copies of W-2s
• written VOEs, or
• electronic verification acceptable to FHA.”
The rules also say “No explanation is required” for gaps in an FHA loan applicant’s employment provided it is “six months or less during the most recent two years.”
Again, borrowers do not have to spend two years with the same employer to meet FHA employment requirements, but verification of employment is necessary in any case as described above. It’s also important to remember that these standards are FHA minimums; your lender may have more strict standards depending on the type of loan or other factors.
Do you have questions about FHA loans? Ask us in the comments section
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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