Articles in Category: Debt Ratios

May 15, 2015

FHA Loan Rules For Employment: A Reader Question

A reader asks, “if one party has a temp position to perm and there is a letter from temp staff stating that she will be hired full time at the end of the 6 month probation period by the company she is working for can we be eligible for a fha loan or will it get denied?” FHA loan rules for verifying employment and income from that employment are found in HUD 4155.1 Chapter Four, Section D, which states in part: “To be eligible for a mortgage, FHA does not require a minimum length of time that a borrower must have held a position of employment. However, the lender must verify the borrowers employment for the most recent two full years, and the borrower must: –explain any gaps in employment | more...

May 13, 2015

FHA Loan Rules For Commission Income: A Reader Question

By Joe Wallace

A reader asks, “With commission income can a person be at one job for about a year and then move to a different employer but same line of work and still commission type pay and be there for a year qualify? Can the 2 years be from different employers?” This scenario would be handled on a case-by-case basis by the lender for several important reasons. The lender will need to determine if the commission income is likely to continue, for starters, and also insure that the amount of commissions has not decreased. FHA loan rules in HUD 4155.1 state: “Commission income showing a decrease from one year to the next requires significant compensating factors before a borrower can be approved for the loan. A borrower whose commission income was received | more...

April 14, 2015

FHA Loan Rules For Commission Income: Another Reader Question

By Joe Wallace

A reader asks, “What if a person went from a commission based job as a loan officer to a salary plus commission job as a Mortgage Loan Manager? Would the salary still be averaged over 2 years?” This question is in reference to an earlier post we did back in 2013, which was titled, “FHA Loans and Commission Income: A Reader Question”. In that blog post, we answered a reader who asked us, “Is it true that if you work in a job where your pay is based on commission you have to be with your current employer for at least one year to obtain a FHA loan, even if your prior job was in the same line of work and was also a commission paying job?” The answer we | more...

April 7, 2015

FHA Loans and Verifiable Income Sources: A Reader Question

By Joe Wallace

A reader asks, “I have a notarized agreement with the father of my child to receive a total amount of cash distributed in two or more deposits during the month in my account.” “I receive it on Cash and then I deposited in my bank account. My lender deny me the loan because they need to see the whole amount agreed in only one single deposit. Is that true? How can I properly prove and evidence this income?” It’s important to remember that FHA home loans have two sets of standards which must be followed–basic FHA loan guidelines are one, and participating lender standards are another. Depending on the laws of your state, lender requirements, and other factors, a borrower may find questions such as these tough to get a | more...

April 2, 2015

Commission Income And FHA Loans: A Reader Question

By Joe Wallace

A reader asks, “I made 41000 in 2013 and 65000 in 2014 I am on pace to making over 100000 this year. How will they calculate my income for an FHA loan. I am a saleried and I get commission.” The participating FHA lender is required to calculate the applicant’s income and verify that it is likely to continue–not all income can qualify to be used in figuring out the borrower’s debt-to-income ratio, only “verifiable income”. Commissions can and often are counted as verifiable income for the purpose of FHA loan approval, but that income must meet specific criteria. Borrowers who earn commission must have, in general, been earning the commission for a year or more. The FHA loan rules listed in HUD 4155.1 explain such requirements for verifiable commission | more...

March 16, 2015

FHA Loan Income Rules: Projected Verifiable Income

By Joe Wallace

We write a lot about FHA loan income rules. When the lender is processing your FHA loan application, your verifiable income is counted against your monthly financial obligations. The lender must review all sources of your income to determine whether those sources are stable, reliable, and likely to continue for a reasonable period of time. Your job and current income is verified by the lender by way of pay stubs and other documentation. But what happens when a borrower has a pay raise or promotion due later on that could positively change the borrower’s debt to income ratio? Can the lender include such projected income in the equation? The rules covering this issue are found in HUD 4155.1 Chapter Four Section E, which says in part: “Projected or hypothetical income | more...

March 11, 2015

FHA Loans and Debt-To-Income Ratio: A Reader Question

By Joe Wallace

A reader asks, “Our daughter and son in law are trying to obtain a FHA loan. They are only using my son in law for the loan because our daughter’s credit score is too low. However his income/debt ratio is too high because of a car loan.” “We have agreed to pay off the car to lower the monthly income/debt ratio. Their combined income is enough to cover the mortgage and pay us back. How will this affect their loan application?” Unfortunately, there’s no clear way to address this question for a variety of reasons. There are many variables including whether or not the couple resides in a community property state, where state law will have a say in how the lender may or may not consider the FHA loan | more...

What you should know about FHA 203(h) Loans For Disaster Victims

February 10, 2015

FHA Loan Questions: Minimum Income Requirements

By Joe Wallace

A reader asks, “Hello just want to know how much do my annual gross amount have to be to get approved for a FHA loan?” Two of the most common myths about FHA home loans are that the FHA is only for first-time homebuyers and that FHA loans have a minimum income or maximum income requirement. None of those things are true. The FHA does not have a minimum dollar amount the borrower must earn in order to qualify, and there is no income ceiling or limit for FHA loans. FHA loans are not specifically for disadvantaged people, nor are they specifically for first time home buyers. However, it’s important for all potential FHA borrowers to know that your lender will determine whether or not you can afford the new | more...

May 28, 2014

FHA Loan Income Rules: A Reader Question

By Joe Wallace

A reader asks, “Whats the least amount of income for an FHA home loan?” This is a common question, but the real question a borrower should be asking in these cases has more to do with how much money goes out in payment to financial obligations versus how much money is coming in. That is known in lending circles as the debt-to-income ratio. The specific answer to the borrower’s question here is that there is NO minimum income requirement listed in the FHA loan rulebook. “FHA’s mortgage programs do not typically have maximum income limits for qualifying, although you must have sufficient income to qualify for the mortgage payment and other debts.” That’ is a quote from according to a HUD publication titled “100 Questions And Answers About Buying a | more...

May 23, 2014

FHA Loan Debt Ratios and Student Loans: A Reader Question

By Joe Wallace

A reader asks, “My student loans are in my name, because my parents wanted to get my credit/payment history started early, but they pay the loans…It is a blessing that they pay them every month, but if I went to get an FHA mortgage for a first time home buyer would I have to count that $350.00 per month loan expense or could they write a letter or prove that they are actually the ones that get the bill and pay it? This really makes a difference when I check the amount I could potentially be approved for.” The answer to this question may depend on the lender, but in general the student loan debt is in the borrower’s name and that is the key to understanding the issue. The | more...