March 20, 2017
FHA loan rules require the lender to verify a borrower’s employment-how long the borrower has been employed, the nature and duration of the job, the pay, and other factors that may be required by lender standards or state law. Sometimes it is easy to misunderstand these requirements, but many simply don’t know what the lender is looking for when verifying a borrower for an FHA mortgage loan.
One reader got in touch with us to learn what the FHA loan rules are for employment, asking, “What is the required period of employment for FHA?”
HUD 4000.1 provides the answer, stating:
“For all Employment related Income, the Mortgagee must verify the Borrowers most recent two years of employment and income, and document using one of the following methods” which include “traditional” where the lender gets verification from the employer in writing or electronically, or “alternative” methods of verification which may include pay stubs or deposit statements, plus telephone verification of the borrower’s work status. Lender standards may require additional steps.
But there are additional requirements for employment verification when it comes time for the lender to verify the borrower’s income:
“For employees who are paid hourly, and whose hours do not vary, the Mortgagee must consider the Borrowers current hourly rate to calculate Effective Income. For employees who are paid hourly and whose hours vary, the Mortgagee must average the income over the previous two years. If the Mortgagee can document an increase in pay rate the Mortgagee may use the most recent 12-month average of hours at the current pay rate.”
Self-employed borrowers should know HUD 4000.1 also requires documentation of two years of employment as described on page 204:
“The Mortgagee may consider Self-Employment Income if the Borrower has been self-employed for at least two years.
If the Borrower has been self-employed between one and two years, the Mortgagee may only consider the income as Effective Income if the Borrower was previously employed in the same line of work in which the Borrower is self- employed or in a related occupation for at least two years.”
There may be additional requirements for any or all of these areas depending on lender standards. FHA loan rules are not the only ones that may affect how the lender must verify information such as work history or income-state law, lender standards or other regulations may apply.
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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