FHA Work History Guidelines

FHA Work History Guidelines on Non-Traditional Jobs and Gaps

Gustan Cho Associates are mortgage brokers licensed in 48 states

We aim to examine the FHA Work History Guidelines in this blog post and explain how they are relevant to borrowers with gaps in their employment or an inconsistent job history. The Federal Housing Administration, established in 1934, is crucial in promoting homeownership by ensuring home financing remains within reach for working Americans.

With a focus on affordability, the FHA facilitates access to housing for individuals with limited funds for down payments and maintains lenient mortgage lending guidelines. This emphasis on inclusivity enables a broader spectrum of individuals to achieve the dream of owning a home despite variations in their work history.

Understanding the FHA Work History Guidelines becomes essential for borrowers navigating through periods of employment gaps or unconventional work patterns. Lenders can better evaluate loan applicants by considering their employment history and financial stability. These guidelines offer a more complete picture of a borrower’s financial situation, allowing for a more thorough assessment.

Talk to a Loan Officer About FHA Work History Guidelines

The Role of HUD on FHA Loans

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HUD, the overseeing entity of FHA, is a substantial federal agency. The Federal Housing Administration, commonly known as FHA, functions neither as a mortgage lender nor an investor. Instead, it operates as a governmental body that provides insurance for FHA loans issued by private mortgage lenders approved by FHA.

This insurance coverage comes into play if a default leads to property foreclosure. FHA is responsible for ensuring the loss, or a portion incurred by the originating and funding mortgage lender. This adherence to FHA Work History Guidelines ensures a safety net for lenders involved in FHA loan transactions.

What is FHA Guidelines?

To secure FHA insurance for defaulted loans and protect against losses, private mortgage lenders like banks, credit unions, and mortgage companies must adhere to FHA guidelines during loan origination. Failure to comply renders lenders ineligible for insurance coverage. FHA imposes rigorous lending criteria, especially regarding employment history for mortgage applicants. This article delves into FHA work history guidelines and addresses rules concerning job gaps.

FHA Work History Guidelines Explained

The FHA work history guidelines specify that home loan applicants must have a two-year work history. These guidelines often lead to confusion among both borrowers and loan officers. It’s important to note that the requirement for a two-year employment history only necessitates continuous employment with a single employer for part of the 24 months, as per the FHA Work History Guidelines.

According to the FHA work history guidelines, borrowers can hold multiple jobs within the past two years and may also have experienced employment gaps.

FHA Guidelines on Extended Employment Gaps

Extended gaps in employment are permitted. However, there are additional guidelines when it comes to extended gaps in employment. The two-year employment history requirement is that FHA requires is borrowers to have been employed for two years overall

Here is a case scenario:

  • borrowers can have been employed for one year at ABC Company from 2015 until 2016
  • then have taken two years off looking for work from 2016 until 2017
  • regained full-time employment in 2017 and is currently working

This mortgage loan application will qualify for an FHA loan under FHA Work History Guidelines. This is because he has an overall two-year employment history. This mortgage applicant does not have two years of steady employment history with the same employer. But as overall two-year employment history. This is what FHA requires per FHA Work History Guidelines.

What If I Am Told I Do Not Qualify For FHA Loan Due To Job Gaps?

Many mortgage loan applicants are told that they do not qualify for an FHA loan because they did not have a steady employment history of at least two years with the same company or because they had gaps in employment.

When a lender says borrowers do not qualify because they were not at the same job with the same employer for the past two years, had multiple jobs in the past two years, or had extended gaps in employment, those are not FHA Work History Guidelines. If a lender tells the above things, their company has lender overlays that are above and beyond the minimum FHA Guidelines.

Can I Qualify For an FHA Loan With Multiple Jobs and Gaps in Employment?

Borrowers will qualify for an FHA Loan after having multiple jobs and gaps in employment in the past two years. Not from a lender with mortgage lender overlays but with a lender with no mortgage overlays.

Qualify for an FHA Loan with Multiple Jobs Today

What are the DTI requirements for FHA loans?

In adherence to the FHA work history guidelines, applicants seeking an FHA loan can be considered for manual underwriting with compensating factors. The maximum allowable debt-to-income ratio under these circumstances is set at 56.9%.

This highlights the flexibility the FHA provides in assessing loan applications, recognizing that certain compensating factors may positively influence an applicant’s financial situation, allowing for a slightly higher debt-to-income ratio while maintaining prudent lending standards.

Applicants need to be aware of these guidelines, as they underscore the FHA’s commitment to facilitating homeownership for a diverse range of individuals. By incorporating compensating factors into the manual underwriting process, the FHA aims to offer a balanced approach to evaluating financial eligibility, taking into account various factors that may impact an applicant’s ability to meet mortgage obligations responsibly.

What Are Mortgage Lender Overlays?

There are two types of FHA Guidelines.

The first and most important is the FHA Guidelines imposed by HUD

  • The minimum guidelines imposed by HUD, the parent of the Federal Housing Administration ( FHA ), will guarantee loan approval as long as home buyer go with a lender that has no mortgage lender overlays and will just go off the minimum HUD Guidelines
  • There are many lenders who do not have mortgage lender overlays
  • Lenders with no overlays will just go off FHA minimum mortgage guidelines

The second set of guidelines is called lender overlays

  • Overlays are additional guidelines that are imposed by each individual mortgage lender
  • Every lender can impose additional guidelines on top of the minimum FHA Guidelines
  • A lender can set a lender overlay for a mortgage loan application where they will not accept any credit scores under 640

FHA Guidelines to qualify for an FHA Loan is 500 with a 10% down payment. A lender can require that a mortgage loan applicant needs to have two years of steady employment history with the same company. FHA Guidelines do not require that. Lenders can require that all collection accounts with balances have their unpaid balances paid off as part of their mortgage lender overlays.

Choosing FHA Lender With No Overlays For Bad Credit

FHA Guidelines do not require borrowers to pay off outstanding collections and charged off accounts. Borrowers can still get an FHA Loan approved, funded, and closed with outstanding collection accounts with unpaid credit balances.

Borrowers with prior bad credit, open collections, prior bankruptcy, prior foreclosure, gaps in employment, lower credit scores, charge-offs, judgments, recent late payments, or other credit or debt to income ratio issues, consult with a lender with no overlays.

Gustan Cho Associates Mortgage Group has no mortgage lender overlays and will just go off the minimum FHA Guidelines set by the U.S. Department of Housing and Urban Development ( HUD ).

FHA Guidelines on Gaps in Employment

Gaps in employment are allowed under FHA Guidelines. Borrowers can have multiple jobs in the past two years and qualify for FHA Loans. Gaps in employment are allowed. If employed for less than 6 months and changed jobs, new income in the new job will be used. However, the lender will require borrowers to have been at the new job for at least 30 days.

FHA Guidelines on Employment Gaps Longer Than Six Months

30 days of paycheck stubs will be required prior to the lender issuing a clear to close and fund the mortgage. If unemployed or out of work for 6 or more months, FHA Guidelines mandate to be on a new job for at least 6 or more months. It is okay to have been unemployed or out of work for many years as long as borrowers have two-year employment history and have been on a new full-time job for at least six months

FHA Guidelines On Personal Profile

FHA Guidelines On Personal Profile

FHA requires that borrowers need to be at least 18 years old to qualify for an FHA-insured mortgage loan.

  • If a married couple, one of the borrowers needs to be at least 18 years old
  • Borrowers need to be United States citizens or permanent resident aliens to qualify for an FHA-insured mortgage loan
  • Non-permanent resident aliens need a valid social security number
  • Need to be in the United States lawfully and have a legal U.S. residence and proof of residency

Income Guidelines For FHA Loans

Days of no income verification and state income mortgage loans are long gone. Need documented income to qualify for any government mortgage. There are specific maximum debt-to-income ratio caps implemented by FHA. FHA allows up to a maximum 46.9% front-end debt to income ratio and a 56.9% maximum back-end debt to income ratio with credit scores of at least 620 or higher to get an approval/eligible per AUS.

HUD Guidelines on Manual Underwriting on FHA Loans

For mortgage applicants with credit scores of under 620, the maximum front-end debt to income ratio is capped at 43% to get an approve/eligible per automated underwriting system. All manual underwrites are capped at 31% front-end debt-to-income ratios and 43% back-end debt-to-income ratios. With compensating factors, debt to income ratios can get increase to 40% front end and 50% back end.

FHA Work History Guidelines On Part-Time And Other Income

Part-time income, overtime income, and bonus income can be used as long as the mortgage loan applicant has at least a two-year history of earning part-time income, overtime income, and bonus income from the same company. If the mortgage loan applicant had multiple jobs in the past two years and had part-time income, overtime income, and bonus income all of those multiple jobs cannot be used unless that income has two years of seasoning.

FHA Guidelines on Social Security and Pension Income

Social security income, pension income, and disability income can be used as documented income. Social security income, pension income, and disability income can be grossed up by 15% if the mortgage loan applicant just gets a net check every month. Cash income does not count and cannot be used for income qualification purposes.

FHA Work History Guidelines On 1099 Income

If a mortgage loan applicant is a self-employed borrower or 1099 wage earner, FHA requires a minimum of two years of tax returns and/or two years of 1099 in order to qualify for an FHA loan.  Borrowers can have multiple businesses and/or have been employed by multiple employers who issued you 1099 but two years of tax returns and/or 1099 is required.

Child support income, alimony income, and royalty income can be used towards income qualification. However, the proof is needed that the income will continue for the next three years. Click here to apply for an FHA Loan

How do I know if I have an FHA loan?

To determine if you have an FHA loan, you can take the following steps:

  1. Check Your Loan Documents: Review the documents you received at the time of closing when you obtained your mortgage. Look for any mention of the Federal Housing Administration or FHA. Your loan documents, including the note and the deed of trust or mortgage, should specify the type of loan you have.
  2. Contact Your Lender: Reach out to your mortgage lender and inquire about the type of loan you hold. They should be able to provide information about whether the FHA will back up your loan.
  3. Check Online: Consider your mortgage lender’s online account to check the loan details. This platform often provides information about the loan type and any government backing.
  4. Visit the HUD Website: The Federal Housing Administration (FHA) supervision is under the authority of the HUD. You can visit the HUD website or contact them directly to inquire about your loan status.
  5. Look for FHA Insurance Premiums: Borrowers are usually required to pay mortgage insurance premiums (MIP) when they obtain FHA loans. Review your mortgage statements or payment history to see if there is a line item for MIP. This could indicate an FHA-insured loan.

If you are still trying to decide after these steps, consider seeking assistance from a HUD-approved housing counselor or a mortgage professional who can help you identify the specifics of your loan.

If you have any questions on FHA Work History Guidelines on Non-Traditional Jobs and Gaps or borrowers who need to qualify for FHA loans with a lender with no overlays on government or conforming loans, please contact us at Gustan Cho Associates at 800-900-8569. Text us for a faster response. Or email us at alex@gustancho.com . The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.

FAQs on FHA Work History Guidelines on Non-Traditional Jobs and Gaps

1. What are FHA Work History Guidelines? FHA Work History Guidelines are standards the Federal Housing Administration (FHA) set to evaluate borrowers’ employment history. These guidelines are crucial for individuals with employment gaps or unconventional work patterns.

2. How does FHA promote homeownership? Established in 1934, the FHA is key in promoting homeownership by ensuring accessibility to home financing for working Americans. It emphasizes affordability and offers lenient mortgage lending guidelines to accommodate a diverse range of individuals.

3: Why is understanding FHA Work History Guidelines important? Understanding FHA Work History Guidelines is essential for borrowers with employment gaps or inconsistent job histories. Lenders use these guidelines to assess applicants’ financial stability, offering a more comprehensive evaluation.

4. Can I obtain an FHA loan even though I have had various jobs and periods of unemployment in my work history? As per FHA Guidelines, borrowers with multiple jobs and employment gaps can qualify for an FHA loan. However, lenders imposing additional restrictions beyond these guidelines may have overlays.

5: What are the Debt-to-Income (DTI) requirements for FHA loans? In adherence to FHA Work History Guidelines, the maximum allowable debt-to-income ratio for FHA loan applicants is 56.9%. This flexibility recognizes compensating factors that may positively influence an applicant’s financial situation.

6. How can I determine if I have an FHA loan? To determine if you have an FHA loan, check your loan documents for any mention of the Federal Housing Administration. Contact your lender, review online account details, visit the HUD website, and check for FHA insurance premiums in your mortgage statements.

7. What is the role of HUD in FHA loans? The Department of Housing and Urban Development (HUD) oversees the FHA, acting as a governmental body that provides insurance for FHA loans issued by approved private mortgage lenders. This insurance safeguards lenders in case of defaults and foreclosures.

8. Are there additional guidelines beyond FHA Guidelines? Lenders may impose overlays and additional guidelines beyond FHA’s minimum requirements. Borrowers should choose lenders with no overlays or adhere to FHA’s minimum guidelines for guaranteed loan approval.

9. How does FHA handle gaps in employment longer than six months? FHA Guidelines permit gaps in employment. If unemployed for six or more months, borrowers need a new full-time job for at least six months. Documentation, including 30 days of paycheck stubs, may be required.

10. Can self-employed borrowers qualify for an FHA loan? Yes, self-employed borrowers can qualify for an FHA loan, but a minimum of two years of tax returns or 1099 forms is required. FHA Guidelines also apply to other types of income, such as social security, pension, and 1099 income.

 

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This blog about FHA Work History Guidelines on Non-Traditional Jobs and Gaps was updated on March 8, 2024.

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2 Comments

  1. I want to purchase either a single family home or a duplex sometime this year. And I will move into it as my primary residence.

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