- However, each lender can have higher standards when it comes to income and employment
- The additional higher lending standards are called lender overlays
- Lender overlays are lending guidelines that are set by individual mortgage lenders that are above and beyond the minimum HUD Agency Mortgage Guidelines
- There are lenders like Gustan Cho Associates Mortgage Group that has no lender overlays
- Gustan Cho Associates just goes off the minimum HUD Agency Mortgage Guidelines
Importance Of Income And Employment When Qualifying For A Mortgage
- The longer a borrower was with a particular employer without changing jobs, the safer the lender feels
- For example, lenders like to see a borrower who has been at the same job for the past ten years than a borrower who has hopped multiple jobs in the past two years
- Therefore, many lenders will require borrowers to have been on the same job for the past two years
- This is not a HUD 4000.1 FHA Guidelines but rather a lender overlay by the lender
- HUD Employment Guidelines are more lenient which we will cover in this article
- Gaps in employment in the past two years is allowed
- However, lenders may not allow this due to their lender overlays
- If you are told that you do not qualify for an FHA loan due to having multiple jobs in the past two years or having employment gaps in the past two years, look for a lender like Gustan Cho Associates that has no lender overlays
In this article, we will discuss the 2020 HUD Employment Guidelines To Qualify For FHA Home Loans.
HUD Employment Guidelines Versus Lender Overlays On FHA Loans
Not all mortgage companies have the same employment in the past two years of mortgage guidelines on FHA loans.
- Many lenders will require borrowers to have the same employer for the past two years
- This requirement is not HUD Guidelines
- It is the individual mortgage lender’s own requirement
- Borrowers applying for an FHA loan should research the basic HUD Guidelines before applying for an FHA loan
- All lenders need to meet the mandatory minimum HUD Guidelines
- However, lenders can have lending requirements that are above and beyond the minimum HUD Guidelines
- These higher lending requirements by the lender is called lender overlays
- Gustan Cho Associates Mortgage Group is one of the very few national lenders that do not have any lender overlays on government and conventional loans
Gustan Cho Associates will just go off the minimum HUD Guidelines and not require any other overlay beside the agency guidelines.
HUD Employment Guidelines On 2-Year Employment History
One of the common questions by borrowers is do you need to be on the same job for the past two years?
- The answer is NO
- Gaps in employment and multiple employment in the past two years are allowed when qualifying for FHA loans
- Many borrowers are told they need two years of employment history with the same job
- This is not correct
- A lender may require no employment gaps and the same employment in the same job for the past two years as part of their lender overlays
- Two years of employment history means an overall two years of employment history needs to be stated on the mortgage application
- Say a borrower was employed with the same employer for the past one year
- However, the borrower was unemployed for ten years prior to the current job
The borrower will need an additional one-year employment history prior to their employment gap. That completes the two-year employment history.
HUD Employment Guidelines On Employment Gaps
Per the FHA handbook 4000.1, there are specific rules with gaps in employment to qualify for FHA loans.
- Borrowers can have a gap in employment in the past two years prior to applying for a mortgage
- If the borrower was unemployed for six months or less and gets a new job, the borrower can qualify for an FHA loan with the new job
- The new wage of the new job and stated on the employment offer letter is used for qualified income
- If the borrower has been unemployed for longer than six or more months and gets a new job, the borrower needs to be seasoned on the new job for at least six months
- The borrower can be unemployed for a long time frame
However, two-year employment history is required. Changing jobs in the past two years is allowed and does not have to be in the same field.
Going From 1099 Or Self-Employed To W-2 Wage Earner And Vice Versa
Self-employed borrowers need two years of full time self-employment income tax returns to qualify for an FHA loan.
- Full-time self-employed wage earners who go to W-2 wage earner jobs can qualify for a mortgage with no seasoning requirements
- An offer-employment letter and 30 days of paycheck stubs by the employer is required
- However, if a W-2 wage earner goes from W-2 wager earner status to self-employed income status need to be in their self-employed wage earner status for at least two years
- W-2 wage earner going to 1099 wage earner status need a two year seasoning requirement as a 1099 wage earner
- There is no seasoning requirement for 1099 wage earners going to a W-2 wage earner status
Full time students can use their full time education as equivalent to work experience and do not need two-years of employment history if they get a job as a W-2 wage earner after graduation and/or leaving school.
June 20, 2020 - 4 min read