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FHA Loans and Trust Income

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FHA home loan applications require the borrower to list income and job details so that the lender can accurately determine a borrower’s debt-to-income ratio. For this purpose, FHA loan rules say that only income that is likely to continue can be used–the borrower’s wages, tips, bonuses and other earnings may be counted if they meet FHA criteria for “stable and reliable” and “likely to continue”.

One source of income for some borrowers involves a trust fund–can trust income be used as verifiable income for an FHA mortgage loan?

The answer is yes, but only if the trust income meets FHA loan minimum standards as described in HUD 4155.1, which includes the following guidance to lenders when reviewing trust fund income listed on a borrower’s application, found in a section called Investment and Trust Income:”

“Interest and dividend income may be used for qualifying as long as tax returns or account statements support a two-year receipt history. This income must be averaged over two years. The underwriter should subtract any funds derived from these sources that are required for the cash investment, before calculating the projected interest or dividend income. Income from trusts may be used for qualifying if guaranteed, constant payments will continue for at least the first three years of the mortgage term.”

The lender will, under FHA loan rules, require the FHA loan applicant to provide documentation of the trust arrangement. According to HUD 4155.1:

“Required trust income documentation includes a copy of the Trust Agreement or other trustee statement, confirming the

• amount of the trust

• frequency of distribution, and

• duration of payments.

The borrower may withdraw funds from the trust account to use for the required cash investment if he/she provides adequate documentation that this withdrawal will not negatively affect the amount of trust income the underwriter used to determine repayment ability.”

For more information on these standards, speak to your loan officer or contact the FHA directly.

Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at www.FHA.com (a private website, not a government agency).

Joe Wallace - Staff Writer

By Joe Wallace

October 29, 2013

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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FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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