March 16, 2015
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 is not acceptable for qualifying purposes. However, exceptions are permitted for income from
• cost-of-living adjustments
• performance raises, and
• bonuses.
For the above exceptions to apply, the income must be
• verified in writing by the employer, and
• scheduled to begin within 60 days of loan closing.
Projected income is acceptable for qualifying purposes for a borrower scheduled to start a new job within 60 days of loan closing if there is a guaranteed, non-revocable contract for employment. The lender must verify that the borrower will have sufficient income or cash reserves to support the mortgage payment and any other obligations between loan closing and the start of employment.”
Chapter Four also adds, “The loan is not eligible for endorsement if the loan closes more than 60 days before the borrower starts the new job. To be eligible for endorsement, the lender must obtain from the borrower a pay stub or other acceptable evidence indicating that he/she has started the new job. Examples: A teacher whose contract begins with the new school year, or a physician beginning his/her residency fall into this category.”
As you can see, the lender has some fairly specific instructions in this area, but it’s always best not to assume your income does not qualify–let the lender make the determination if you’re in doubt.
Do you have questions about FHA 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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