November 2, 2017
Are there any income documentation rules for FHA loans? That is what some borrowers want to know when they are ready to fill out a mortgage loan application. What does your FHA lender need to know about your income and employment?
The FHA Lender Is Required To Document Your Employment And Income
In the FHA loan handbook, HUD 4000.1, your FHA loan officer is instructed to document two years of employment, though that two years is not necessarily required to be with the same company or in the same job position.
The lender wants to know your income history, whether you have gotten any raises, or whether recent job changes have resulted in a benefit to you income-wise.
FHA Loan Rules Require Independent Verification Of Your Income
This means that regardless of what you provide to the lender in terms of documentation, the loan officer is required to get records from the employer and/or the IRS that verify your income. In fact, FHA loan rules prohibit the borrower or interested third parties from supplying certain kinds of documentation for this purpose. From HUD 4000.1:
“Mortgagees must not accept or use documents relating to the employment, income, assets, or credit of Borrowers that have been handled by, or transmitted from or through the equipment of unknown parties, or Interested Parties. Mortgagees may not accept or use any third party verifications that have been handled by, or transmitted from or through any Interested Party, or the Borrower.”
What Kind Of Income Verification Is Needed?
There are “traditional” jobs and ways of recording income; there are also non-traditional or alternative versions of the same. FHA loan rules anticipate this, requiring the lender to proceed with the best documentation options at her disposal. For traditional jobs/income, the lender is instructed as follows:
“The Mortgagee must obtain the most recent pay stub and one of the following to verify current employment:
-a written Verification of Employment (VOE) covering two years; or
-an electronic verification acceptable to FHA.
Re-verification of employment must be completed within 10 Days prior to the date of the Note. Verbal re-verification of employment is acceptable.”
For “non-traditional” or “alternative” circumstances, the lender is instructed by HUD 4000.1:
“If using alternative documentation, the Mortgagee must:
-obtain copies of the most recent pay stub that shows the Borrower’s year-to-date earnings;
-obtain copies of the original IRS W-2 forms from the previous two years;
and
-document current employment by telephone, sign and date the verification documentation, and note the name, title, and telephone number of the person with whom employment was verified.”
As with typical income verification, HUD 4000.1 states that re-verification of employment must be completed within 10 Days “prior to the date of the Note. Verbal re-verification of employment is acceptable.”
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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