April 7, 2016
A reader asked us a question about FHA loan standards for income verification recently; “I was told today that my part time job could not be used because its not on a continuous basis. Is that true? I have worked this job part time for the last 4 years and its through out the year.”
“Its home health care so I watch patients here and there throughout the year. As mentioned I have been employed there since 2012. Why will FHA not approve that income because I have not worked there in the last 30 days but Im still an employee. I also have a full time job.”
FHA loan rules are very clear about the nature of part-time income when it comes to verifying it for the FHA loan. All income must be verified by the lender as stable, reliable, and likely to continue in order to be included in the borrower’s debt to income ratio. For part-time income, HUD 4000.1 has a definition of what it considers “part time” and the standard for all income that meets that definition:
“Part-Time Employment refers to employment that is not the Borrowers primary employment and is generally performed for less than 40 hours per week.”
The FHA loan rulebook standard for part time income is found in HUD 4000.1 on page 188, which states:
“The Mortgagee may use Employment Income from Part-Time Employment as Effective Income if the Borrower has worked a part-time job uninterrupted for the past two years and the current position is reasonably likely to continue.”
The reader’s question indicates the possibility that he or she has not worked the part time job “uninterrupted” in the last 24 months. If that is true, the FHA loan standard on page 188 would prevent the lender from using that income to calculate the home loan.
Part time employment standards are not the same as seasonal employment standards. Seasonal employment income is defined by the FHA as follows:
“Seasonal Employment refers to employment that is not year round, regardless of the number of hours per week the Borrower works on the job.” The FHA loan standards for seasonal employment, found on pages 189 and 190 of HUD 4000.1 state that the lender, “…may consider Employment Income from Seasonal Employment as Effective Income if the Borrower has worked the same line of work for the past two years and is reasonably likely to be rehired for the next season. The Mortgagee may consider unemployment income as Effective Income for those with Effective Income from Seasonal Employment.”
Lenders will need additional documentation to verify seasonal income, so borrowers should be prepared to furnish tax statements, records of unemployment compensation and other documents as required by the lender.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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