July 29, 2020
The FHA and HUD have announced an extension to some of its’s temporary coronavirus measures created to help participating lenders approve FHA home loans. This announcement was made in a group message containing other guidelines with changes via a “multisubject mortgagee letter” by HUD in the last week of July 2020.
“COVID-19 Multisubject: Updated Temporary Guidance for Verification of Self-Employment; Rental Income; 203(k) Rehabilitation Escrow Account” is a HUD mortgagee letter with updates that affect FHA loan rules for applicants trying to qualify for an FHA mortgage with self-employment income.
There are other updates for those who want to purchase a home using rental income to qualify–we’ll explore that information in a future blog post.
The measures announced in the FHA mortgagee letter are not permanent; it’s part of a move temporarily updating FHA loan requirements to make them more adaptable in the pandemic.
The new rules are in effect temporarily until an initial deadline of November 30, 2020 at press time. This deadline is likely subject to change if conditions don’t improve. For now, lenders are required to do the following as defined by the HUD official site:
“Due to the continued impact of the COVID-19 National Emergency…the Mortgagee must verify the existence of the borrower’s business within 10 calendar days prior to the date of the Note to confirm that the Borrower’s business is open and operating.”
The lender is also required to gather evidence of current work (executed contracts or signed invoices that indicate the business is operating on the day the lender verifies self-employment) as well as have access to current business receipts within 10 days of the note date (payment for services performed).
Furthermore, the participating FHA lender must be able to certify the business is actually open or that the business website is currently operational.
One thing these changes do not affect? FHA loan rules say self-employment income, commissions, and other payment options have to be earned for a minimum amount of time–otherwise they may not be counted for loan approval purposes.
If you have been working as a self-employed person for less than a year, ask your lender how long you’ll need to earn that income for it to be counted at that financial institution.
The FHA loan rules altered by the mortgagee letter we are discussing here don’t affect those minimum requirements. For best results, apply for a new large line of credit after you have worked in a new type of income (self-employed, commission, seasonal work, etc) after you’ve had the same type of job for two years or more.
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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