July 11, 2016
When you fill out a home loan application, your lender will need employment and income documentation in order to process your loan. The lender is responsible for verifying that you have employment and that your income is sufficient to justify the loan.
Not all income counts as “verifiable” by the lender; FHA loan rules have guidelines that include making sure the income is stable and likely to continue. Your lender may also have standards which must be met where income is concerned.
There are many types of income, and not all of it comes from employment. Do you receive government assistance, get payments from a trust fund, are entitled to pay or benefits from a government agency related to disability, child support, alimony? These and many other sources may be considered.
Once that income is verified the lender needs to make a calculation-the amount of debt being paid each month compared to the amount of verifiable income. The ratio, commonly known as the debt ratio or debt-to-income ratio, must meet lender standards and FHA loan guidelines.
In some cases the debt-to-income ratio may “stretch” or have a “stretch ratio” applied to it (this may be applicable if you are applying for an FHA Energy Efficient Mortgage, for example), but in other cases the maximum debt-to-income ratio may be affected by FICO scores unless there are compensating factors such as cash reserves, or what the FHA labels “residual income”.
Your debt to income ration requirements may depend on FICO scores, lender standards, and other variables. It’s important to have a conversation with your lender if you aren’t clear on what income can and will be used and how the income is verified. If you have concerns about the income verification process, the lender can explain how it all works based on FHA loan rules and the standards of that financial institution.
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:
http://www.fha.com/fha_loan_limits_widget
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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