FHA Loan Rules for Employment

June 4, 2023

How long does the FHA require an applicant to be on the job before he or she is eligible to apply for a loan? There are sometimes misconceptions about these requirements on a basic level, and there are important questions that some may worry about going into the FHA loan application. What if an FHA loan applicant has recently changed jobs, or experienced a gap of employment?

The rules that defined these issues when this article was originally published were explained in HUD 4155.1. They noted at the time, but may now be different:

“To be eligible for a mortgage, FHA does not require a minimum length of time that a borrower must have held a position of employment. However, the lender must verify the borrowers employment for the most recent two full years, and the borrower must:

• explain any gaps in employment that span one or more months, and
• indicate if he/she was in school or the military during the most recent two full years, providing evidence supporting this claim, such as college transcripts, or discharge papers.”

According to FHA loan rules, your loan officer may be permitted to make allowances for seasonal work or employment patterns that are typical in certain types of industry such as construction or agriculture. These must also be documented. Lender standards may apply here, so if you have concerns it’s best to discuss them directly with the lender.

The FHA has specific requirements for documentation of employment gaps and other related issues--these are explained in Chapter Four.

“When analyzing the probability of continued employment, the lender must examine:

• the borrowers past employment record
• qualifications for the position
• previous training and education, and
• the employers confirmation of continued employment.”

The FHA lender isn’t automatically going to rule out an applicant who has frequent job changes if those changes meet certain criteria. According to Chapter Four, “...favorably consider a borrower for a mortgage if he/she changes jobs frequently within the same line of work, but continues to advance in income or benefits. In this analysis, income stability takes precedence over job stability.”

Have you been searching for a  job for a while? Have you returned to employment? “A borrower’s income may be considered effective and stable when recently returning to work after an extended absence if he/she:

• is employed in the current job for six months or longer, and
• can document a two year work history prior to an absence from employment using traditional employment verifications, and/or copies of W-2 forms or pay stubs.”

FHA loan rules give examples of the “acceptable employment situation” such as someone who took “several years off from employment to raise children, then returned to the workforce.”

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