HUD 4000.1 is the FHA loan rule book for single family home loans and refinance loans. This rule book includes instructions to the lender on how to process FHA loan applications and how the lender should treat specific circumstances that can affect a borrower’s chances for FHA loan approval. Naturally these rules are FHA loan minimum standards and lenders may have additional requirements, but the basics for FHA loan approval are addressed.
These basics include instructions to the lender on how the FHA views application issues such as having frequent gaps in employment or temporary reductions of income. What do these situations do to a borrower’s chances for FHA loan approval?
HUD 4000.1 addresses the frequent gaps in employment issue directly, stating:
“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.”
Frequent job changes are also addressed:
“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.”
Some borrowers don’t have these job change issues, but do have to contend with a temporary reduction in pay. This could be the result of taking a temporary leave of absence, or having a short-term disability. In such cases, HUD 4000.1 states:
“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. For Borrowers returning to work after the first Mortgage Payment due date, the Mortgagee may use the Borrowers current income plus available surplus liquid asset Reserves, above and beyond any required Reserves, as an income supplement up to the amount of the Borrowers pre-leave income.”
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: