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FHA Loans and Income Verification: “Future Income”

September 22, 2011

Borrowers who apply for an FHA home loan are required to list all sources of income on the application. This is required for multiple reasons; the lender must calculate the applicant’s debt-to-income ratio to see if the borrower is able to afford the new mortgage payments if approved for the FHA loan. A borrower who has too much going out and not enough going in won’t qualify for an FHA loan.

But there’s another reason for the requirement; an FHA lender is required to verify that the employment and income listed on the FHA loan application is genuine. The lender can’t simply accept on good faith that the data listed on the form is true. When the borrower is notified he or she has been approved for an FHA insured mortgage, that approval has come only after the lender has done “due diligence” in verifying the details on the application.

Some borrowers who want FHA loans don’t have “current employment” for a variety of reasons. Does this disqualify an FHA loan applicant automatically? Do seasonal workers, medical professionals completing residencies, and teachers waiting for the new school year to begin get the short shrift on an FHA loan simply because their employment hasn’t started yet?

Not necessarily.

FHA rules allow for “future employment” to be considered as verifiable income for an FHA loan if that employment meets FHA standards. The most important hurdle to clear in such cases is that the employment must begin with 60 days of the closing of the loan. Specifically, the FHA rules say future employment, or “projected income” is “acceptable for qualifying purposes for a borrower scheduled to start a new job within 60 days of loan closing if there is a guaranteed, non-revocable contract for employment.”

In addition, “The lender must verify that the borrower will have sufficient income or cash reserves to support the mortgage payment and any other obligations between loan closing and the start of employment.”

FHA rules say the loan cannot be approved if it closes more than 60 days before the applicant starts the new employment, and in any case the lender must verify the employment has begun within the 60 day period following the close of the loan.

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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