FHA
Income Documentation
In order to qualify for an FHA loan, all
income must be analyzed to ensure that it is sufficient to
cover the mortgage and other obligation of the borrower. Also,
the stability and likelihood of continuance must also be
analyzed. Income from any source that cannot be verified, is
not stable, or will not continue may not be used in
calculating the borrower’s income ratios.
DEBT RATIOS: On April 13, 2005 HUD
increased the allowable debt ratio for manually underwritten
loans to 31/43. Debt Ratios are the
relationship between ones income and ones expenses. Ratios are
generally expressed as two numbers like 31 over 43 or 31/43.
These are now standard FHA ratios. The first number, the 31,
represent the relationship between the borrowers income and
his new housing expense of principal, interest, taxes,
insurance and homeowner dues. A borrower who makes $3,000 per
month and has a housing expense of $930 would have a 31% top
end ratio.
The other
number of 43% represents the total monthly debt, including the
housing expense and all other debt such as credit cards,
loans, child support, etc. Thus in our example of the borrower
that makes $3,000 per month and had a total expense of $1,290,
would have a 41% bottom ratio.
With the use of
automated approvals, a borrower’s ratios can exceed the
guidelines above and may go has high as 50%. Also, with compensating factors a borrower
may be able to exceed the ratio guidelines
STABILITY OF INCOME: HUD does
impose an arbitrary minimum length of time a borrower must
have held a position to be eligible. However, the lender must
verity the borrower's employment for the most recent two full
years. If a borrower indicates he or she was in school or in
the military during any of this time, the borrower must
provide evidence supporting this such as college transcripts
or discharge papers. The borrower must also explain any gaps
in employment of a month or more.
Allowances for seasonal employment, such as
is typical in the building trades, etc., may be made.
The lender or underwriter is looking to
show a steady source of constant earnings. Borrowers with
frequent job changes generally show a lack of stability. Also,
large swings or changes in income will also lead an
underwriter to question the stability of the income. A
borrower who changes jobs frequently within the same line of
work, but continues to advance in income or benefits should be
considered favorably.
SALARIED BORROWERS
SELF-EMPLOYED BORROWERS
OTHER
INCOME - RENT, NOTES, TRUST, ETC
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