FHA Salaried Income
Borrowers
FHA SALARIED BORROWERS / FIXED INCOME
SALARY & HOURLY WAGES: Generally in calculating effective FHA income in this scenario, the FHA
underwriter will use the base employment income of the borrower. The FHA underwriter will also to look at the prior
two years w-2 to analyze the stability of the current income. If earning are similar or increasing at a normal
rate, they will most likely use the current base income. If income varies drastically they may choose to average
the income. If the borrower is an hourly employee the underwriter will also have to determine the average
number of hours per week worked. Many times hourly employees do not work a full 40 hour work week.
Overtime and bonus income: Both overtime and bonus may be used to qualify for a FHA loan if the borrower has
received such income for the past two years and there are reasonable prospects of its continuance. They are
looking for consistent earning. If the bonus or overtime varies that may take the most conservative approach of not
count the income at all.
Part-time income: Part-time (second job) income, including employment in seasonal work, may be used in
qualifying for a FHA loan if the borrower has worked the part-time job uninterrupted for the past two years and
will continue to do so. Seasonal employment (e.g., umpiring baseball games in summer, working at a department store
during the Christmas shopping season) is considered uninterrupted and may be used in qualifying if the borrower has
worked the same type of job for the past two years and expects to be rehired during the next season. If the
borrower works several part time jobs then they must have worked at least 2 years at each job before it can be
counted.
Retirement and Social Security income: This type of income requires verification from the source
(former employer, Social Security Administration) or through federal tax returns. If any benefits expire within the
first full three years, the income source may only be considered as a compensating factor for a FHA loan. Usually
this income is verfied through the use of Bank Statements and Award letters.
Alimony, Child Support or Maintenance Income: Income in this category may be considered as effective if such
payments are likely to be consistently received for approximately the first three years of the mortgage. The FHA
borrower must provide a copy of the divorce decree, legal separation agreement, or voluntary payment agreement and
evidence that payments have been received during the last twelve months. Acceptable evidence of regularity of
payments includes cancelled checks, deposit slips, tax returns, court records, etc. Periods less than twelve months
may be acceptable provided the payor's ability and willingness to make timely payments is adequately documented by
the lender. Effective April
13, 2005: Treatment of Child Support: Previously HUD did not permit the "grossing up" of child support income
in calculating the qualifying ratios. However, after considerable review, the Department has
decided to permit properly documented child support to be grossed up under the same terms and conditions as other
non-taxable income sources.
Government Assistance Programs: Income received under a welfare program, unemployment income, workman's
compensation, payments for foster children, etc., is acceptable subject to documentation from the paying agency
provided the income is expected to continue at least three years.
Projected Income: Except for those situations described below, projected or hypothetical income is not
acceptable for qualifying purposes. Exceptions are permitted for income from cost-of-living adjustments,
performance raises, bonuses, etc., verified by the employer and scheduled to begin within 60 days of loan
closing.
For those borrowers about to start a new job, if the borrower has a guaranteed, non-revocable contract for the new
employment that will begin within 60 days of loan closing, the income is acceptable for qualifying purposes. The
lender must also verify the borrower will have sufficient income or cash reserves to support the mortgage payments
and any other obligations during the interim between loan closing and the start of employment. (This may be
appropriate for situations such as a teacher whose contract begins with the new school year, or a physician
beginning residency after the loan is scheduled to close.)
EMPLOYMENT BY FAMILY-OWNED BUSINESSES: Borrowers employed by businesses owned by family members are required
to provide additional income documentation. These FHA borrowers must provide the normal verification of
employment and pay stubs, and evidence that he or she is not an owner of the business. This may include copies of
the borrower's signed personal tax returns or a signed copy of the corporate tax return showing ownership
percentages.
|
