FHA Loans, Projected Income: A Reader Question

A reader got in touch with a question related to our post “FHA Loan Answers: New Job Income” which included the following:

“Many FHA loan applicants want to know if taking a new job will affect their chances at FHA loan approval. FHA loan rules are designed to help guide loan officers through the qualification process for a variety of scenarios including those where the borrower may have “projected income” that could be factored into the borrower’s debt-to-income ratio.

What do FHA loan rules say about projected income? How is it defined? The answers to these questions and more can be found in HUD 4155.1 Chapter Four, Section E.

“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 reference to that, the reader asks, “I am being asked by my Human Resources department to define what a “non-revocable contract” would include. Can you give me a sample of one or the information an underwriter would want to see in one?”

Unfortunately, the FHA loan rules covering this (found in HUD 4155.1 Chapter Four, Section E) don’t provide an example. That portion of the loan rules includes the following:

Projected or hypothetical income is not acceptable for qualifying purposes. However, exceptions are permitted for income from

• cost-of-living adjustments

• performance raises, and

• bonuses.

For the above exceptions to apply, the income must be

• verified in writing by the employer, and

• scheduled to begin within 60 days of loan closing.

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. 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.

The loan is not eligible for endorsement if the loan closes more than 60 days before the borrower starts the new job. To be eligible for endorsement, the lender must obtain from the borrower a pay stub or other acceptable evidence indicating that he/she has started the new job. Examples: A teacher whose contract begins with the new school year, or a physician beginning his/her residency fall into this category.”

That’s basically the entire FHA rulebook statement on the matter. Borrowers who need an example will have to contact the loan officer to see what would be considered acceptable by that financial institution. The requirements may vary from bank to bank.

Do you have questions about FHA home loans? Ask us in the comments section.