June 22, 2023
Part of the FHA loan approval process involves the lender verifying an applicant’s income. FHA rules state that for purposes of calculating a borrower’s debt-to-income ratio, only verifiable income can be counted in that ratio.
Do FHA rules allow a borrower’s interest or dividend payments from investments to be counted as verifiable income?
For some borrowers, this can be an important question. According to the FHA Lender’s Handbook, “The Mortgagee must verify and document the Borrower’s Investment Income by obtaining tax returns for the previous two years and the most recent account statement.”
Additional instructions to the lender for this issue include the requirement that when making the calculation.
“The Mortgagee must subtract any of the assets used for the Borrower’s required funds to close to purchase the subject Property from the Borrower’s liquid assets” and this must be done before calculating any interest or dividend income.
The FHA also spells out the rules for income from trusts, which requires the loan officer to verify the trust agreement.
The FHA lender must “also verify and document the frequency, duration, and amount of the distribution by obtaining a bank statement or transaction history from the bank” according to HUD 4000.1.
There must be regular payments from the trust that continue “for at least the first three years of the mortgage term.” Your lender may require specific documentation of trust income.
Another type of income addressed in these rules is described by the FHA as “notes receivable income” which may typically be in the form of the payments you might receive when acting as the payee or holder of a promissory note.
To include this as verifiable income, the lender needs:
- a copy of the note to establish the amount and length of payment, and
- Documentation that payments “have been consistently received for the previous 12 months,” such as via tax returns, deposit slips or canceled checks;
- Such payments should be guaranteed to continue for the first three years of the FHA mortgage.
For more information on using these types of income to qualify for an FHA mortgage, talk with a participating FHA lender or call the FHA directly at their toll-free number, 1-800 CALL FHA.
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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