A reader asked us a question in the comments section this week about part-time income and how it may or may not qualify as verifiable income for an FHA loan. The reader asks:
“My file is with the underwriter for review, they have asked for an VOE from my employer but they stated I work 16 hours a week (position hired into) but I always work more the 16 hr a week for the last 5-6 months and I’m going to continue to work more then that, they have already seen check stubs and both w2 from 2015 and 2016. Could this deny me for my loan?”
We first have to determine what the FHA definition of part-time income. HUD 4000.1 gives lenders guidance in this area beginning with the following:
“Part-Time Employment refers to employment that is not the Borrowers primary employment and is generally performed for less than 40 hours per week.”
Already we see that FHA loan rules seem to differentiate from a potential borrower’s “main income” sources and part time labor. However, FHA loan rules do not seem to draw a specific prohibition for the lender on using part time income as a main source of funds.
That said, HUD 4000.1, also states:
“The Mortgagee may use Employment Income from Part-Time Employment as Effective Income if the Borrower has worked a part-time job uninterrupted for the past two years and the current position is reasonably likely to continue…The Mortgagee must average the income over the previous two years. If the Mortgagee can document an increase in pay rate the Mortgagee may use a 12-month average of hours at the current pay rate.”
So for the purposes of answering this reader’s question, HUD 4000.1 makes it clear, the lender cannot use any part-time income to help the borrower qualify for the FHA loan unless it meets the above criteria.
It is also important to remind readers that state law and lender standards may also apply above and beyond what is mentioned in the reader’s question. Your loan application requirements and required documentation may vary from lender to lender, and employment requirements may vary too. It is always good to get the advice of a participating FHA lender to determine what may be possible in a given situation.