August 13, 2015
When two borrowers want to apply for an FHA loan together, there are often questions about whether one borrower can make up shortcomings for the other. For example, can a borrower who earns less be offset by the borrower who earns more?
As with many areas of the FHA single family home loan process, lender standards may apply, but it’s good to know the basic FHA loan requirements that apply. When it comes to income, FHA loan rules found in HUD 4155.1 at the time of this writing address the issue in Chapter Four Section D:
“The lender must analyze the income of each borrower who will be obligated for the mortgage debt to determine whether the borrowers income level can be reasonably expected to continue through at least the first three years of the mortgage loan. In most cases, a borrowers income is limited to salaries or wages. Income from other sources can be considered as effective, if properly verified and documented by the lender.”
What about borrowers who may be retiring soon? Chapter Four has the following instructions to the lender:
“Effective income for a borrower planning to retire during the first three-year period must include the amount of
− documented retirement benefits
− Social Security payments, or
− other payments expected to be received in retirement.”
And what about those who have part-time income? Can the lender use this employment also? Chapter Four says yes, as long as the part-time job meets certain requirements:
“Part-time and seasonal income can be used to qualify the borrower if the lender documents that the borrower has worked the part-time job uninterrupted for the past two years, and plans to continue. Many low and moderate income families rely on part-time and seasonal income for day to day needs, and lenders should not restrict consideration of such income when qualifying these borrowers.”
There’s even a provision added for borrowers who have had a part-time job for less than the required two years. “Part-time income received for less than two years may be included as effective income, provided that the lender justifies and documents that the income is likely to continue.”
As you can see, the phrase “likely to continue” is an important part of all these guidelines.
Do you have questions about FHA loans? FHA Refinance 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.
Browse by Date: