December 22, 2015
FHA loan rules in HUD 4000.1 specify a variety of requirements for verifying a loan applicant’s income. Military income is one type of earnings brought to the FHA loan process–how is the lender instructed to review this type of employment and verify the earnings?
According to HUD 4000.1, the process is similar to other typical types of employment, but thanks to military benefits, allowances, and special pay some additional guidance is required for the lender, starting with a basic definition of the term “military pay”.
“Military Income refers to income received by military personnel during their period of active, Reserve, or National Guard service, including:
–base pay
–Basic Allowance for Housing
–clothing allowances
–flight or hazard pay
–Basic Allowance for Subsistence
–proficiency pay”
All of those could be used to determine what the applicant’s income is, but some types of military benefits cannot be counted. Military education benefits, for example, may not be used since these benefits are not considered “likely to continue” beyond the time they are effective for schooling.
How does the lender verify the income a military member brings to the application process?
“The Mortgagee must obtain a copy of the Borrowers military Leave and Earnings Statement (LES). The Mortgagee must verify the Expiration Term of Service date on the LES. If the Expiration Term of Service date is within the first 12 months of the Mortgage, Military Income may only be considered Effective Income if the Borrower represents their intent to continue military service.”
Once the lender has the documentation, the “current amount” (as opposed to projected earnings) is used to determine the debt-to-income ratio.
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:
http://www.fha.com/fha_loan_limits_widget
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.
Browse by Date: