November 3, 2017
Are there any employment documentation rules for FHA loans? Borrowers are naturally curious about how the lender must verify employment, and that curiosity may turn to concern if the borrower isn’t confident that his or her job history is enough to qualify for the FHA loan minimum requirements.
What do FHA loan rules tell the lender to do when it is time to confirm your employment for FHA loan purposes?
How FHA Loan Employment Verification Works
The lender is required to independently verify your employment, which means getting documentation that does not come from any “interested party” associated with the loan. You may give your lender the contact information for your employer, but you cannot provide the required information the loan officer needs to move forward with the loan application.
FHA loan rules about this are clear. “Mortgagees must not accept or use documents relating to the employment, income, assets, or credit of Borrowers that have been handled by, or transmitted from or through the equipment of unknown parties, or Interested Parties. Mortgagees may not accept or use any third party verifications that have been handled by, or transmitted from or through any Interested Party, or the Borrower.”
That means that even if you get a sealed envelope from your employer to deliver to the bank, the loan officer cannot accept such employment information from your hands-it must come from the employer or a third party not involved in the FHA home loan or refinance loan transaction.
What The FHA Lender Looks For From Your Employment Information
FHA loan rules tell the lender to verify the applicant’s most recent two years of employment. The two years don’t have to be in the same position or even with the same company, but if there are changes within that two years, the lender may ask for supporting documentation or look for evidence that the borrower has been upwardly mobile, employment and income-wise.
There is an exception to the requirement that a lender get direct documentation of a two-year employment history. HUD 4000.1 states:
“Direct verification of the Borrower’s 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.”
What Kind Of Documentation For Employment Is Acceptable?
FHA loan rules state the following documents may be used by the lender to verify your employment:
-W-2
-Verification of Employment forms
-Electronic verification acceptable to FHA
-Evidence supporting enrollment in school or the military during the most recent two full years
Talk to your loan officer if you aren’t sure how these rules may apply to your circumstances.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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