October 6, 2016
FHA home loan employment rules can be easily misunderstood. There is some confusion over the basics of FHA loan policy regarding employment and how that employment must be verified by the lender. One of the most common fictions about FHA mortgage loans is that the rules supposedly require a borrower to be with their current employer for two years or more.
This is not true. But there IS a two-year benchmark the FHA uses with respect to employment, as we learn in HUD 4000.1:
“For all Employment related Income, the Mortgagee must verify the Borrowers most recent two years of employment and income…”
Note that there is no specification for that two years to be with the same company or boss. HUD 4000.1 adds, “Direct verification of the Borrowers employment history for the previous two years is not required if all of the following conditions are met:
-The current employer confirms a two year employment history, or a paystub reflects a hiring date.
-Only base pay is used to qualify (no Overtime or Bonus Income).
-The Borrower executes IRS Form 4506, Request for Copy of Tax Return, IRS Form 4506-T, Request for Transcript of Tax Return, or IRS Form 8821, Tax Information Authorization, for the previous two tax years.”
As you can see, it’s easier for the loan officer to verify the borrower’s work history if the applicant has been with the same firm for two years or more, but it’s not required under FHA mortgage loan rules.
What DOES the FHA require if the borrower hasn’t been with the same company for two years? HUD 4000.1 states:
“If the applicant has not been employed with the same employer for the previous two years and/or not all conditions immediately above can be met, then the Mortgagee must obtain one or a combination of the following for the most recent two years to verify the applicants employment history:
-W-2(s)
-VOE(s)
-electronic verification acceptable to FHA
-evidence supporting enrollment in school or the military during the most recent two full years”
These are FHA loan rules, and it’s important to remember that lender standards may apply above and beyond these requirements as long as those standards are applied according to federal (or other applicable) law. If you need more information before you fill out an FHA loan application, speak to a loan officer.
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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