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FHA Loan Rules: Employment

May 22, 2014

042When you apply for an FHA mortgage loan, you’re required to submit a variety of data including your employment history. It’s the FHA loan officer’s job to insure an applicant has sufficient income to afford the loan, and to make sure that income is likely to continue.

How does the lender do this? FHA loan rules spell out clearly what’s to be done–HUD 4155.1 Chapter One, Section B explains how it works. To begin:

“The lender must obtain the most recent pay stub showing year-to-date earnings of at least one month, and one of the following to verify current employment:

• a written VOE verbal verification of employment,
• electronic verification acceptable to FHA.”

The pay stub is documentation that the applicant is currently employed. But when it comes to documenting the past 24 months of employment, Chapter One states:

“The lender is required to verify the applicant’s employment history for the previous two years. However, direct verification is not required if all of the following conditions are met:

• the current employer confirms a two-year employment history (this may include a pay stub indicating a hiring date)
• the lender only uses base pay (no overtime or bonus pay) to qualify the borrower and
• the borrower signs Form IRS 4506 or Form IRS 8821 for the previous two tax years.”

FHA loan rules also tell the lender how to proceed in cases where a borrower has not been employed by the same company for the last two years. It should be pointed out that such scenarios are common and aren’t necessarily a problem, but the lender does have to take steps to verify employment according to Chapter One Section B:

“If the borrower was not employed with the same employer for the previous two years, and/or the above conditions cannot be met, the lender must verify the most recent two years of employment history by obtaining

• copies of W-2s
• written VOEs, or
• electronic verification acceptable to FHA.”

Chapter One adds, “No explanation is required for gaps in employment of six months or less during the most recent two years.”

Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.


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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