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FHA Loan Income Questions: Pay Stubs and W-2s

January 25, 2016

052A reader got in touch with us recently to ask a question about FHA loan income requirements. We got the following question in the comments section: “My husband works as a mechanic and gets paid cash so he doesnt really have a proof of income or the last 2 yrs or w2 and has an OK credit score and we are trying to get a FHA loan to buy a house..what do we need to do to be able to qualify?”

This is an important issue, especially for self-employed people. The bottom line is that the participating FHA lender is required by FHA loan regulations to obtain proof of income in some way. This proof is needed so the lender can verify the income and insure that it is likely to continue.

Some types of income aren’t counted towards the FHA loan application because it cannot be properly verified, or it cannot be determined that the income is likely to continue. This is often true of online sales such as hobby Ebay accounts or other types of sporadic income.

In the case of this particular reader question, in the absence of pay stubs or other typical paperwork, tax data may be required. You may have to supply the lender with several years of previous income tax returns. Verification of deposit may also be accepted in addition to these forms as a way to further document the amount and regularity of income.

The lender is not only required to verify the amount and frequency of the income, but also to verify at least two years of employment with similar paperwork–that two years doesn’t have to be with the same employer, but some record of employment must be provided (especially for self-employed borrowers).

In cases where this paperwork is not available, the lender may have no way to verify the income, therefore an FHA loan may not be possible. It’s crucial to have some kind of “paper trail” for the lender to prove the borrower has income and is a good credit risk in that respect. A loan applicant that cannot show proof of income is at a serious disadvantage for FHA loan approval.

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:


Joe Wallace - Staff Writer

By Joe Wallace

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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