When you apply for an FHA mortgage, you’re asked to fill out a variety of forms and authorizations giving the lender permission to verify your income, credit history and your employment record. But what is a lender looking for when it’s time to verify your employment?
FHA loan rules instruct the lender to carry out a minimum employment review in addition to whatever policies are used by the financial institution. The FHA rules don’t override the bank’s standards, but they do establish a baseline for what must be done at a minimum.
According to HUD 4155.1 Chapter One Section B, “The lender is required to verify the applicant’s employment history for the previous two years. However, direct verification is not required if all of the following conditions are met:
• the current employer confirms a two-year employment history (this may include a pay stub indicating a hiring date)
• the lender only uses base pay (no overtime or bonus pay) to qualify the borrower and
• the borrower signs Form IRS 4506 or Form IRS 8821 for the previous two tax years.”
That works out well for borrowers who fit the above criteria, but there are plenty of FHA loan and refinance loan applicants who don’t currently have a two-year record with the same company or employer. What happens in these cases? Chapter One Section B has the answer:
“Borrower Not Employed with Same Employer:
If the borrower was not employed with the same employer for the previous two years, and/or the above conditions cannot be met, the lender must verify the most recent two years of employment history by obtaining
• copies of W-2s
• written VOEs, or
• electronic verification acceptable to FHA.”
These rules also include the following stipulation: “No explanation is required for gaps in employment of six months or less during the most recent two years.”
While this is not the complete text of all FHA loan rules that cover employment verification, these sections do address several commonly asked questions. For more information on FHA minimum standards for employment or related issues, speak to a loan officer or contact the FHA directly at 1-800 CALL FHA.
Do you have questions about FHA loans? Ask us in the comments section.