April 24, 2020
Can all of your income be used to qualify for an FHA mortgage? If you need to buy a home soon, it’s important to understand home loan approval rules, especially in times of economic uncertainty.
There are some forms of income that don’t qualify to be counted as “verifiable income” for the purpose of establishing the borrower as a good candidate for loan approval.
There is specific criteria for the kinds of earnings you can use to qualify, and specific criteria for the types of earnings that the lender cannot count as part of your monthly predictable pay.
Understanding those income rules is very important, especially now. Many Americans are receiving unemployment, government stimulus checks, and other financial resources. But not all money can be used toward your verifiable income, even though it helps in the meantime.
The FHA Loan Rules For Verifiable Income: Stability Required
The income is required to be both stable and reliable. The lender must be able to state with confidence that in all likelihood, that income will continue.
A government stimulus check is a one-time payment and could not be counted as part of your regular ongoing income.
The same is true for things that have a built-in expiration date such as a housing stipend provided by the GI Bill. That can’t be counted as income for the purposes of FHA loan approval.
Military Income
It’s not just GI Bill benefits that fall under scrutiny; military income is also subject to review and verification by the lender. Here’s what HUD 4000.1 says of verifying military paychecks:
“The Mortgagee must obtain a copy of the Borrower’s military Leave and Earnings Statement (LES). The Mortgagee must verify the Expiration Term of Service date on the LES. If the Expiration Term of Service date is within the first 12 months of the Mortgage, Military Income may only be considered Effective Income if the Borrower represents their intent to continue military service.”
FHA loan rules say alimony and child support may be considered income, but the borrower must provide documentation showing the history of these payments, any court orders or agreements that codify the payments somehow, and any evidence that the income is likely to continue.
A borrower who RECEIVES child support or alimony is not required to disclose it if they do not want to, but without disclosure, it cannot be counted.
Certain types of self-employment income may not be counted unless it is verifiable as likely to continue and is a year old or more. As you can see, the likelihood that the income will continue is an important aspect of the verification process.
What does not under FHA home loan rules qualify as stable and reliable income? Hobby earnings such as selling items or services on eBay or other online retail operations, income that is not likely to continue such as one-off goods or services transactions, part-time jobs you haven’t held for more than a year, and certain benefits which do not continue indefinitely and are not likely to continue for at least three years.
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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