May 3, 2022
Here’s a variation on a common question about FHA loan approval. “I recently switched employment types from salary to commission. How long do I have to earn on a commission basis to qualify for a mortgage?”
If you have recently changed the way you earn, that change may complicate your FHA loan process depending on how recently the change happened and other variables.
Switching to commission from salary is one of the best-known examples, but some borrowers may have changed from being full-time, in-house employees, to being contractors or consultants. In other cases, an FHA loan applicant may have quit working for someone else to be their own boss as a small business owner.
In all cases, the lender requires proof of employment and income in the form of W2s or other pay records, plus tax data and bank account statements.
And when there’s been a change in the way you earn income, you may find the lender requires a minimum amount of time earning in that way. Two years is typical but much depends on the lender and your individual circumstances.
HUD 4000.1, the FHA Single-Family Lender’s Handbook, says certain types of income aren’t counted by the lender, often because it cannot be properly verified, or it cannot be determined that the income is likely to continue. This is often true of online sales such as hobby online sales accounts such as eBay or Discogs.com, and other types of “hobby income” that are not full-time employment.
The lender is not only required to verify the amount and frequency of any acceptable income but also to verify at least two years of employment in general, though the two years don’t have to be with the same employer. The key takeaway here? Some record of employment must be provided, especially if you are self-employed.
If you aren’t sure you’ve worked long enough as your own boss, or as a contractor or commission-earner, talk to a participating FHA lender and ask what the standard is for that financial institution. You may not be as far away from being able to apply as you think, and if you have compensating factors like a larger down payment there may be exceptions your lender may consider.
No two home loan applications are exactly the same in terms of circumstances. You’ll want to give your lender every chance to approve you for a new home loan even if that means waiting a few extra months to begin the pre-approval or pre-qualification process.
Taking the extra time can be worth the wait, especially if that extra time could help you to save more for closing costs and your down payment.
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.
Browse by Date: