August 14, 2015
We’ve written elsewhere about the importance of the borrower’s verifiable income when it comes time to fill out an FHA loan application and have the lender review the amount of money coming in versus how much goes out for financial obligations. A borrower’s employment income is very important, but the job you have may not be the sole source of income at application time.
For some applicants there may be military income, public assistance or other types of government income for the lender to consider. What are the FHA loan rules for this type of income? Is it allowed at all?
The loan rules for the income types mentioned above are found in HUD 4155.1 Chapter Four Section E. We’ll start with military income. Basic pay and allowances are not the only types of money coming in for those who serve in uniform. According to Chapter Four, certain military “special pay”, clothing allowances and other types of payments could also count toward the borrower’s debt to income ratio if the pay meets certain conditions:
“Military personnel receive base pay, and are often entitled to additional forms of pay, such as
–variable housing allowances
–clothing allowances
–flight or hazard pay
–rations, and
–proficiency pay.
These types of additional pay are acceptable when analyzing a borrowers income as long as the probability of such pay to continue is verified in writing.”
The only exception to this is a military member or veteran’s education allowances–this type of pay cannot be used to qualify for an FHA home loan since it is not “likely to continue” beyond a fixed length of time.
When it comes to government assistance, FHA loan rules are clear:
“Income received from government assistance programs is acceptable for qualifying, as long as the paying agency provides documentation indicating that the income is expected to continue for at least three years. If the income will not be received for at least three years, it may be considered as a compensating factor. Unemployment income must be documented for two years, and there must be reasonable assurance that this income will continue. This requirement may apply to seasonal employment.”
Section 8 home ownership vouchers may also be included as income if the vouchers meet certain conditions. We’ll discuss that issue in another blog post.
Do you have questions about FHA home loans? Ask us in the comments section.
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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