December 17, 2010
When an FHA loan applicant completes paperwork for the first time, they may notice the FHA has different requirements for those who are self-employed than for those who are employees. If you work for an employer, your income reporting requirements are comparatively simple; self employed FHA borrowers must furnish tax returns and other business documentation to prove a regular, dependable flow of income from their business ventures.
But what about FHA borrowers who don’t own their own business but are employed by a business owned and operated by their family?
The FHA guidelines in these cases are simple and direct; the FHA requires all family business employees to prove they are legitimate employees rather than owners or part-owners of the company. To own or partially own a business changes the reporting requirements for the FHA mortgage applicant, so the borrower must prove they are “employed by” the business rather than a controlling interest.
This is done by submitting the same kind of employment verification information as required for any other type of work, but it must be supplemented by personal tax returns and/or signed copies of the business tax returns showing how much, if any, part of the company the FHA borrower owns.
FHA borrower can’t own more than 24% of a company and still be considered an employee by the government. Ownership of 25% or more of any company puts the borrower in the “self employed” category instead and they must furnish all documentation required of self-employed FHA loan applicants. You aren’t denied the chance to get an FHA loan simply because you’re self employed, but you must follow the guidelines for your employment status when submitting FHA loan paperwork.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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