October 22, 2015
The new FHA single family home loan program policy handbook, HUD 4000.1, has a section on income verification rules that includes instructions to the lender on how to include part-time income in the FHA loan applicant’s debt-to-income ratio.
HUD 4000.1 makes an important distinction between full-time income and part-time earnings, and borrowers need to understand how FHA loan rules make the distinction. When it comes to full-time work, HUD 4000.1 Part II Section A states:
“Primary Employment is the Borrowers principal employment, unless the income falls within a specific category identified below. Primary employment is generally full-time employment and may be either salaried or hourly.”
For part-time income, the rules say:
“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 standards for part-time earnings include the following:
“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 Mortgagee must average the income over the previous two years. If the Mortgagee can document an increase in pay rate the Mortgagee may use a 12-month average of hours at the current pay rate.”
Earlier in the rule book, the lender is instructed to verify all forms of income, both full and part time.
“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 pay stubs, sometimes tax records, and documentation from the employer certifying details of the borrower’s work history and income.
Do you work in residential real estate? You should know about the free tool offered by FHA.com, 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 at 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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