August 24, 2017
There are many different types of income that can be used to qualify for an FHA home loan. While there is no minimum or maximum income requirement to qualify for an FHA mortgage, the borrower’s debt-to-income ratio, stability and duration of income, and other factors will be scrutinized as part of the loan application process.
Some income is simple to verify. Other types of income have have additional requirements. That is true of certain public assistance including Section 8 Housing Choice vouchers and income received from government-run public assistance programs. In these cases the duration of the payments will be an important factor.
Using Section 8 Housing Choice Vouchers As Income
The FHA loan handbook, HUD 4000.1, states on page 210 that a lender is responsible for verifying the nature and duration of the vouchers as described in the handbook:
“Section 8 Homeownership Vouchers refer to housing subsidies received under the Housing Choice Voucher homeownership option from a Public Housing Agency (PHA)”.
As for using the vouchers as income, FHA loan rules instruct the lender to “verify and document the Borrower’s receipt of the Housing Choice Voucher homeownership subsidies. The Mortgagee may consider that this income is reasonably likely to continue for three years.”
Furthermore, the lender is required to “…only use Section 8 Homeownership Voucher subsidies as Effective Income if it is not used as an offset to the monthly Mortgage Payment. The Mortgagee must use the current subsidy rate to calculate the Effective Income”.
Using Mortgage Credit Certificates Other Than Section 8
FHA loan rules state that a participating FHA lender may consider non-Section 8 mortgage credit certificates based on the following guidance from the handbook:
“Mortgage Credit Certificate income that is not used to directly offset the Mortgage Payment before calculating the qualifying ratios may be included as Effective Income. The Mortgagee must use the current subsidy rate to calculate the Effective Income.”
Using Public Assistance As Income
FHA loan rules on page 210 of HUD 4000.1 defines (for the purpose of processing FHA loan applications) public assistance as, “income received from government assistance programs”. FHA loan rules allow the lender to consider using this type of income as long as the lender can verify it and the income meets the following requirement:
“If any Public Assistance income is due to expire within three years from the date of mortgage application, that income cannot be used as Effective Income. If the documentation does not have a defined expiration date, the Mortgagee may consider the income effective and reasonably likely to continue.”
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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