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FHA W-2 Income Only Mortgage Lending Guidelines

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FHA W-2 Income Only Mortgage Lending Guidelines

This BLOG On FHA W-2 Income Only Mortgage Lending Guidelines Was UPDATED On October 30th, 2018

FHA Loans are by far the most popular mortgage loan programs today. FHA Loans are not necessarily always for home buyers with bad credit. FHA Loans offer very lenient lending guidelines for borrowers who have had prior bad credit and those who have higher debt to income ratios.

Here are some great benefits of FHA Loans for home buyers:

  • FHA allows gifted funds to be used for down payment on a home purchase
  • Allows non-occupant co-borrowers to be added on a loan if borrower does not meet the maximum debt to income ratio requirements
  • HUD also caps debt to income ratios up to 56.9% DTI if the borrower has at least a 620 FICO
  • There are no limits on the amount of non-occupant co-borrowers can add as non-occupant co-borrowers.
  • However, non-occupant co-borrowers need to be related to the borrower by marriage, blood
  • Cannot be friends of those with no relations to the borrower
  • Many workers with W-2 income do take advantage of tax deductions on their income tax returns
  • Reason is so they do not have as much tax liability
  • By having larger deductions on their tax returns, it offsets the qualified income borrowers can use when qualifying for a mortgage
  • This can mean not qualifying for a home loan
  • HUD is the parent of the Federal Housing Administration
  • HUD has now allowed borrowers to qualify for W-2 Income Only Loans
  • Income tax returns will not be required in order to qualify for a FHA Loan

W-2 Income Only Loans

W-2 Income Only Loans is now available for borrowers who have many write offs on their income tax returns.

  • This loan program does not require borrowers to provide federal income tax returns
  • Only W-2 Income will be used as qualifying income
  • However, there are rules
  • Not all borrowers can qualify for W-2 Income Only Mortgage
  • This loan program is becoming more and more popular
  • Those who were not eligible to qualify for home loans due to the massive write offs on their income tax returns can now qualify
  • This only holds true if they meet HUD’s W-2 Income Only lending guidelines.

Requirements To Qualify For W-2 Income Only Program

Borrowers must meet the mortgage lending guidelines below to qualify for the FHA W-2 Income Only Mortgage Program

  • To qualify for W-2 Income Only Mortgage program, borrowers must have been employed by the same employer for at least 2 years
  • Hourly and salaried full time employees can both qualify
  • Documents required are 30 days of paycheck stubs, 2 years of W-2s and the W-2s needs to be validated by the Internal Revenue Service, IRS
  • Borrowers who have additional side jobs with 1099 income or own real estate are not eligible
  • There are cases where the 1099 may trigger the requirement of tax returns
  • Those with additional income as a 1099 wage earner need to be evaluated on a case by case scenario
  • Income Tax Returns cannot be turned in if the borrower applies for W-2 Income Only Mortgage Program
  • If the borrower shows that 25% or more of the W-2 income is commission income, this will disqualify the borrower
  • Cannot qualify for FHA W-2 Income Only Mortgage program with non-occupant co-borrowers
  • Only Approve/Eligible per Automated Underwriting System findings are eligible for this program
  • Manual Underwriting FHA Loans are not eligible

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 an 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 who have commission income that consist 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 and/or periodic employment such as seasonal income, unemployment income and contract income will not qualify
  • Borrowers who have income earned from any foreign entity and/or corporation or foreign government entity and who is compensated via foreign currency will not qualify
  • Any borrowers who is employed by a family member as their employer will not qualify
  • Any borrowers who is employed by a non arms length transaction party such as employees of lender will not be eligible for this program
  • Borrowers who get dividend as well as interest income and/or capital gains will not qualify
  • Those with other non-taxable income and/or non-employment income which is reported on their 1099 forms which is used to qualify for their mortgage such as social security income, pension income, and other income will not be eligible
  • Borrowers with tip income that is reported on their IRS Form 4137 that is not have been reported by their employer on their W-2s that is used to qualify will not qualify
  • If the automated findings require tax returns, then tax returns will be required
  • Under no circumstances can income tax returns be submitted to underwriting
  • If the income tax returns were to be submitted to underwriting, then they are automatically disqualified from qualifying

Who Offers FHA W-2 Income Only Mortgage Loan Programs

The Gustan Cho Team at Loan Cabin Inc. 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 Loans as well as VA and Conventional Loans
  • Both Fannie Mae and Freddie Mac offers W-2 Income Only Conventional Loans

Borrowers with higher debt to income ratios due to a lot of write offs on income tax returns and need to know more about both the Conventional, VA, FHA W-2 Income Only Mortgage Loan Programs, please contact Gustan Cho NMLS 873293 at Gustan Cho Associates at 262-716-8151 or text for faster response. Or email us gcho@gustancho.com. Gustan Cho Associates at Loan Cabin Inc. is a national Fannie/Freddie/Ginnie Mae Direct Lender and is licensed in multiple states. The Gustan Cho Team at Loan Cabin Inc. is available 7 days a week, evenings, weekends, and holidays to take your call and/or your email inquiries. Gustan Cho Associates Mortgage Group’s goal and mission is to close all of our loans in 21 days or less.

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