August 13, 2015
One of the most common questions about FHA home loans involves employment issues. How long does the FHA require an applicant to be on the job before he or she is eligible to apply for a loan? What happens is a borrower switches jobs, has a gap of employment between jobs, or has only recently started up with a new employer?
The rules that define these issues are, at the time of this writing, found in HUD 4155.1. They will soon be referenced in a new FHA loan handbook, but for now, HUD 4155.1 Chapter Four Section D is the source for these rules. Chapter Four says:
“To be eligible for a mortgage, FHA does not require a minimum length of time that a borrower must have held a position of employment. However, the lender must verify the borrowers employment for the most recent two full years, and the borrower must
–explain any gaps in employment that span one or more months, and
–indicate if he/she was in school or the military during the most recent two full years, providing evidence supporting this claim, such as college transcripts, or discharge papers.”
Section D adds that the lender can make allowances for seasonal work or employment patterns that are typical in certain types of industry such as construction or agriculture. These must also be documented.
Why does the FHA have specific requirements for documentation of employment gaps and other related issues? The answer can be found in the next section of the rulebook, which states:
“When analyzing the probability of continued employment, the lender must examine
–the borrowers past employment record
–qualifications for the position
–previous training and education, and
–the employers confirmation of continued employment.”
FHA loan rules instruct the lender to, “favorably consider a borrower for a mortgage if he/she changes jobs frequently within the same line of work, but continues to advance in income or benefits. In this analysis, income stability takes precedence over job stability.”
And what about FHA loan applicants who have been out of a job for a while but have since returned to employment? “A borrowers income may be considered effective and stable when recently returning to work after an extended absence if he/she
–is employed in the current job for six months or longer, and
–can document a two year work history prior to an absence from employment using traditional employment verifications, and/or copies of W-2 forms or pay stubs.
Note: An acceptable employment situation includes an individual who took several years off from employment to raise children, then returned to the workforce.”
Do you need answers to your FHA home loan questions? Ask us in the comments section.
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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