Can FHA loans depend on a borrower not having medical leave or temporary absences from work? That’s what one reader wants to know this week:
“I was out from work one month do to a job related injury. Can I get an FHA loan? How long I have to wait to qualify? I have been working for the same company three years.”
FHA loan rules may be non-specific on certain types of circumstances, preferring to defer to state law, lender standards, or other guidelines. However, this situation is not one of those. HUD 4000.1 specifically addresses the issue of temporary absences from the applicant’s place of employment.
HUD 4000.1 describes this as a “temporary reduction of income”, stating:
“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.”
The reader asks, “Can I get an FHA loan?”, and the short answer is that all borrowers will be required to financially qualify. Assuming this reader is otherwise financially qualified and can satisfy the requirements mentioned above, an FHA loan may be possible.
FHA loans have rules that do take into consideration when exactly the borrower has experienced the work absences. On page 206 of HUD 4000.1, we learn the following:
“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.”
HUD 4000.1 adds that the lender must calculate “…(t)he amount of the monthly income supplement” which is the total amount of surplus reserves, “divided by the number of months between the first payment due date and the Borrowers intended date of return to work”. Speak to a loan officer to learn about any additional lender requirements which may apply.