FHA Loan Approval and Your Income
Certain kinds of income normally don’t qualify to be counted as “verifiable income” for the purpose of establishing the borrower as a good credit risk. Now, more than ever, understanding those income rules is key. Many Americans are receiving unemployment, government stimulus checks, and other financial resources. But not all money can be used toward your verifiable income.
You’re probably starting to guess that all income is not viewed the same by your loan officer when it is time to use that income for qualifying purposes. What is the key to income that CAN be counted?
The income is required to be both stable and reliable, and there must be a likelihood that it will continue. The lender uses a variety of methods of determining this depending on the nature of the funds and how they are paid to the borrower.
A government stimulus check is a one-time payment and could not be counted as part of your regular ongoing income. The same is true for things that have a built-in expiration date such as a housing stipend provided by the GI Bill. That can’t be counted as income for the purposes of FHA loan approval.
And while we’re discussing military issues, military income is also subject to scrutiny by the lender in a similar fashion; consider what HUD 4000.1 says of verifying military paychecks:
“The Mortgagee must obtain a copy of the Borrower’s military Leave and Earnings Statement (LES). The Mortgagee must verify the Expiration Term of Service date on the LES. If the Expiration Term of Service date is within the first 12 months of the Mortgage, Military Income may only be considered Effective Income if the Borrower represents their intent to continue military service.”
HUD 4000.1, states that alimony and child support may be considered income, but the borrower must provide documentation showing the history of these payments, any court orders or agreements that codify the payments somehow, and any evidence that the income is likely to continue.
Certain types of self-employment income may not be counted unless it is verifiable as likely to continue and is a year old or more. As you can see, the likelihood that the income will continue is an important aspect of the verification process.
What does NOT qualify as income includes hobby income such as selling items or services on eBay or other online retail operations, income that is not likely to continue such as one-off goods or services transactions, or part-time jobs you haven’t held for more than a year.
Lender standards, state law, and other variables may also play a role in the lender’s decision when it comes to verifiable income.
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