Mortgage Loan Income Guidelines: What You Need To Know

November 22, 2020

FHA loan rules include instruction to your loan officer about how to process your employment information and also includes guidelines about how much time in the job market is required in order for you to be seriously considered as a home loan applicant. These rules require the lender to verify your employment more than once, so it’s good to remember that the closer you get to application time.

HUD 4000.1, the FHA Lender’s Handbook, states that for traditional employment there must either be a pay stub or a written verification of employment covering a two year period. Also acceptable? “...Direct electronic verification of employment” covering two years. FHA loan rules add, “Re-verification of employment must be completed within 10 Days prior to the date of the Note. Verbal or electronic re-verification of employment is acceptable. Electronic re-verification employment data must be current within 30 days of the date of the verification.”

It’s not just your overall time in the job market that counts--if you earn commission income, self-employment income, or other non-salaried earnings, you may be required to earn that type of income for a minimum amount of time before the FHA can consider it as part of your verifiable income.

Commission Income, Self-Employment Earnings

Are you now in a job where you are paid a salary? If you find your company is switching you over to commission income, the participating FHA lender will require a minimum amount of time earning the new type of income (the commissions) before it may be counted as part of your verifiable income for FHA loan approval purposes.

There are similar restrictions if you have recently switched to being a self-employed borrower. You’ll have to earn the self-employed income for a minimum amount of time. 

Don’t count on being able to work a year or less as a self-employed borrower and still get loan approval. Your lender may require you to be self-employed for at least two years. In any case you will be required to provide tax documentation for yourself as a self-employed person for a minimum of two years.

Other Income Sources

Some potential loan applicants ask if they can use a housing stipend paid via the Post 9/11 GI Bill as qualifying income. FHA Loan rules require the income to be stable and reliable, which the GI Bill housing payments may be for the duration of the time they are paid; HUD 4000.1 says those funds must be “likely to continue” in order to count as verifiable income.

GI Bill housing stipends are not likely to continue the same way income is; GI Bill housing payments are only offered when the student is actually attending school–no housing money for summer break, Christmas break, etc. Add to that the expiration for GI Bill housing funds, which is whenever the student’s entitlement has been used up–the money is not available indefinitely.

That is the same reason why applicants may not use unemployment payments to qualify for an FHA mortgage loan. Your unemployment benefits also have limited availability and as such cannot count as income for loan approval purposes.

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