HUD 4000.1, the recently published Single Family Home Loan policy rule book, has either reprinted, revised, updated, or restated FHA loan policy for all single family home loan transactions. That’s why we’re examining some of the most important-to-the-borrower sections of the new rules–bringing you the latest FHA requirements so you can make informed decisions about your FHA loan or refinance loan.
One area we get asked questions about on a regular basis is FHA loan policy toward borrowers who have recently changed jobs, or frequently change jobs due to the nature of their work. How do FHA loan rules address such issues?
The answers, found in HUD 4000.1, Section II, Part A, include the following introductory statements about borrowers with frequent or recent job changes:
“If the Borrower has changed jobs more than three times in the previous 12-month period, or has changed lines of work, the Mortgagee must take additional steps to verify and document the stability of the Borrowers Employment Income. The Mortgagee must obtain:
–transcripts of training and education demonstrating qualification for a new position; or
–employment documentation evidencing continual increases in income and/or benefits.”
Notice that there’s not special requirement in this section for borrowers who have simply switched employers once in the last year. But what about those who have gotten jobs recently after a break in employment? According to the FHA:
“For Borrowers with gaps in employment of six months or more (an extended absence), the Mortgagee may consider the Borrowers current income as Effective Income if it can verify and document that:
–the Borrower has been employed in the current job for at least six months at the time of case number assignment; and
–a two year work history prior to the absence from employment using standard or alternative employment verification.”
And then there are situations where the applicant may have had a reduction in income on a temporary or one-time basis due to circumstances such as medical leave or disability:
“For Borrowers with a temporary reduction of income due to a short-term disability or similar temporary leave, the Mortgagee may consider the Borrowers current income as Effective Income, if it can verify and document that:
–the Borrower intends to return to work;
–the Borrower has the right to return to work; and
–the Borrower qualifies for the Mortgage taking into account any reduction of income due to the circumstance.
For Borrowers returning to work before or at the time of the first Mortgage Payment due date, the Mortgagee may use the Borrowers pre-leave income.”
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