FHA W-2 Income Only Mortgage With No Tax Returns Required

The FHA W-2 Income Only Mortgage Lending Guidelines provide a pathway for borrowers to qualify for an FHA loan based solely on W-2 income, without the requirement of submitting income tax returns. Conventional and FHA loans stand out as the most widely used among the various mortgage loan programs available today.

It is important to note that FHA loans cater to a diverse range of borrowers and are not exclusively designed for those with poor credit. The Department of Housing and Urban Development (HUD), the parent organization of FHA, has established flexible lending guidelines, accommodating borrowers with prior adverse credit history, higher debt-to-income ratios, and credit scores as low as 500 FICO.

FHA loans emerge as a preferred choice for first-time homebuyers, individuals with credit scores as low as 500 FICO, and those with limited or no credit history. This article aims to delve into and elucidate the FHA W-2 Income Only Mortgage Lending Guidelines.

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Homebuyers Who Will Benefit From FHA Loans

Here are some excellent advantages of FHA loans for prospective homebuyers. HUD permits the use of gifted funds for the down payment when purchasing a home. Additionally, the option to include non-occupant co-borrowers in the loan is available for situations where the borrower does not satisfy the maximum debt-to-income ratio requirements.

HUD also cap front-end debt-to-income ratios up to 46.9% and back-end debt-to-income ratio up to 56.9% DTI to get an automated underwriting system (AUS) approval. To qualify for a 3.5% down payment home purchase FHA loan, the borrower needs a 580 credit score.

Homebuyers with a FICO score below 580 and a credit score as low as 500 are eligible for an FHA loan, provided they make a 10% down payment. There is no restriction on the number of non-occupant co-borrowers who can be included in the application.

However, these co-borrowers must have a familial connection to the borrower through either marriage or blood; individuals without such a relationship are not eligible to be co-borrowers. If homebuyers choose non-occupant co-borrowers unrelated by blood or marriage, the down payment requirement increases from 3.5% to 10%.

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W2 Income Only Wage-Earners

Numerous employees earning W-2 income avail themselves of tax deductions when filing their income tax returns. This practice stems from the fact that they have a lower tax liability. Incorporating substantial deductions into their tax returns counterbalances the qualified income that borrowers can leverage when seeking approval for a mortgage.

This situation may otherwise fail to qualify for a home loan. The Department of Housing and Urban Development (HUD) oversees the Federal Housing Administration (FHA). HUD has recently authorized borrowers to be eligible for W-2 income-only loans, eliminating the necessity for income tax returns to qualify for an FHA Loan.

W-2 Income-Only Loans

Loans exclusively based on W-2 income are currently accessible for individuals with substantial write-offs on their tax returns. Unlike traditional loan programs, this particular one eliminates the need for borrowers to submit federal income tax returns, relying solely on W-2 income for qualification. It is important to note that specific rules apply, and not all borrowers may meet the criteria for the W-2 Income Only Mortgage.

Nevertheless, this loan program is gaining popularity, offering an opportunity for individuals previously ineligible for home loans due to significant write-offs on their tax returns. Eligibility is contingent upon satisfying HUD’s W-2 Income Only lending guidelines.

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Requirements To Qualify For W-2 Income Only Program

To be eligible for the FHA W-2 Income Only Mortgage Program, borrowers need to adhere to the mortgage lending guidelines outlined below. Eligibility requires a minimum of two years of continuous employment with the same employer for both hourly and salaried full-time employees.

To verify income, applicants must provide 30 days of paycheck stubs and two years’ worth of W-2s. The W-2s must undergo validation by the Internal Revenue Service (IRS).

W-2 Income Wage Earners With Additional 1099 Income

Individuals who have extra sources of income through 1099 earnings or own real estate are ineligible. There are situations in which having 1099 income may necessitate the submission of tax returns.

Those who earn additional income as 1099 wage earners will be assessed on a case-by-case basis. If a borrower is applying for the W-2 Income Only Mortgage Program, Income Tax Returns cannot be submitted.

W-2 Income Wage Earners Showing 25% or more of the W-2 Income Is Commission Income

If a borrower demonstrates that 25% or more of their W-2 income comprises commission income, they will be deemed ineligible. The FHA W-2 Income Only Mortgage program does not allow qualification with non-occupant co-borrowers.

Only applicants with Approve/Eligible status based on Automated Underwriting System findings are eligible for this program. Manual Underwriting FHA Loans cannot be considered for the W-2 income-only program.

Non-Eligible Borrowers For FHA W-2 Income Only Mortgage Program

Not every borrower can qualify for the FHA W-2 Income Only Mortgage Loan Program. Below are the ineligible borrowers for the FHA W-2 Income Only Mortgage Loan Program:

Self Employed Borrowers are ineligible
Borrowers who have income reported their schedule K-1 of their income tax returns are not eligible.
This holds true no matter how small or large the percentage of the ownership is
Borrowers with a commission income of 25% or more percent on their W-2 income are not eligible.
Borrowers who receive any rental income will be excluded from qualifying for the FHA W-2 Only Income Mortgage program.
Borrowers who earn temporary income or have inconsistent or periodic employment, such as seasonal, unemployment, and contract, will not qualify.

Borrowers who have income earned from any foreign entity, corporation, or government entity and are compensated via foreign currency will not qualify.

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FHA W-2 Income Only Mortgage: Wage-Earners Employed By Family Members

Employees working for a family member as their employer will be ineligible for qualification. Likewise, individuals employed by a non-arms-length transaction party, such as the lender’s employees, will not meet the requirements of this program. Borrowers receiving dividends, interest income, and capital gains will also be disqualified.

Those with other non-taxable or non-employment income, which is reported on their 1099 forms used to qualify for their mortgages, such as social security income, pension income, and other income, will not be eligible.

Borrowers who rely on tip income, as indicated on their IRS Form 4137, but this income has not been reported by their employer on their W-2s, will not be eligible for qualification. The automated findings necessitate the submission of tax returns; thus, tax returns will be mandatory.

Submitting income tax returns for underwriting purposes is strictly prohibited. Any attempt to submit income tax returns to underwriting will result in automatic disqualification from the qualification process.

Who Offers FHA W-2 Income Only Mortgage Loan Programs

Gustan Cho Associates offers FHA W-2 Income Only Mortgage Programs. W-2 Income Only Loans are also offered on VA and Conventional loans. W-2 Income Only mortgage loans are available with both FHA and VA and Conventional loans. Both Fannie Mae and Freddie Mac offer W-2 Income

Only Conventional loans with higher debt-to-income ratios due to a lot of write-offs on income tax returns need to know more about both the Conventional, VA, FHA W-2 Income Only Mortgage Loan Programs, please us at Gustan Cho Associates at 800-900-8569 or text for faster response. Or email us at alex@gustancho.com.

Gustan Cho Associates is a national five-star mortgage company licensed in multiple states. The Team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays to take your call or email inquiries. Gustan Cho Associates Mortgage Group aims to close all our loans in 21 days or less. Talk To a Loan Officer for your mortgage, Click Here

FAQ: FHA W-2 Income Only Mortgage With No Income Tax Returns

What is the FHA W-2 Income Only Mortgage Lending Guidelines article about? This article provides information on the FHA W-2 Income Only Mortgage Lending Guidelines, which allow borrowers to qualify for an FHA loan based solely on their W-2 income, without the need to submit income tax returns. It highlights the advantages of FHA loans and eligibility criteria.
Who can benefit from FHA loans? FHA loans benefit first-time homebuyers, individuals with credit scores as low as 500 FICO, and those with limited or no credit history. Borrowers can use gifted funds for down payments, include non-occupant co-borrowers, and have flexible debt-to-income ratios.
How do credit scores affect FHA loan eligibility? To qualify for a 3.5% down payment FHA loan, borrowers need a minimum credit score of 580. Those with credit scores below 580 but at least 500 can qualify with a 10% down payment.
Can non-occupant co-borrowers be included in the FHA loan application? Yes, non-occupant co-borrowers can be included in the application, provided they have a familial connection to the borrower through marriage or blood. Otherwise, the down payment requirement increases from 3.5% to 10%.
What are W-2 income-only loans, and who can benefit from them? W-2 income-only loans are mortgage programs that rely solely on W-2 income for qualification, eliminating the need for income tax returns. These loans are designed for individuals with substantial write-offs on their tax returns.
What are the requirements to qualify for the W-2 Income Only Mortgage Program? Eligibility for this program requires a minimum of two years of continuous employment with the same employer, verification through paycheck stubs, and two years’ worth of W-2s validated by the IRS.
Are borrowers with additional 1099 income or commission income eligible for this program? Borrowers with additional 1099 income or commission income of 25% or more of their W-2 income are not eligible for the W-2 Income Only Mortgage Program.
Who is not eligible for the FHA W-2 Income Only Mortgage Program? Self-employed borrowers have income reported on Schedule K-1, earn rental income, have inconsistent employment, receive income from foreign entities, or work for family members or non-arms-length transaction parties are not eligible for this program.
Can borrowers submit income tax returns for underwriting purposes? No, submitting income tax returns for underwriting is strictly prohibited. Attempting to do so will result in automatic disqualification from the qualification process.