November 12, 2021
How long do you have to be at one particular job to get an FHA loan? The employment issue is an important one, but some borrowers misunderstand the rules, thinking them to be more strict than they actually are.
What is the reality of the FHA loan employment rules?
FHA Loan Rules For Minimum Employment Standards
The rules governing FHA loan employment standards are found in the FHA loan handbook, HUD 4000.1, which includes the following requirement on how the lender must verify the borrower’s employment history:
“Mortgagees must not accept or use documents relating to the employment, income, assets, or credit of Borrowers that have been handled by, or transmitted from or through the equipment of unknown parties, or Interested Parties.”
Furthermore, the lender “may not accept or use any third-party verifications that have been handled by, or transmitted from or through any Interested Party, or the Borrower.” Sourcing is a very important issue for FHA loan transactions.
This is why the lender will require you to provide your work history complete with contact information; you can provide the means to contact the employer, but the borrower is not permitted to furnish the information itself except as a basic reference to be verified by the lender with the employer, via tax records, etc.
FHA Loan Rules For Documenting Employment History
HUD 4000.1 instructs the lender, “The Mortgagee must document the Borrower’s income and employment history, verify the accuracy of the amounts of income being reported, and determine if the income can be considered as Effective Income”. As you can see, the history of employment is given serious consideration.
FHA Loan Rules For Employment Length
The lender is required to document the borrower’s most recent two years of work history. FHA loan rules do not automatically rule out a borrower who has had a change of employer during that time, but in some cases, some additional documentation may be required. From HUD 4000.1:
“If the Borrower has changed employers more than three times in the previous 12- month period, or has changed lines of work, the Mortgagee must take additional steps to verify and document the stability of the Borrower’s Employment Income.”
Your lender may require tax records and other documentation to verify some or all of the above. Lender standards may apply above and beyond what is written here-you should speak to a loan officer to learn the standards at your chosen financial institution.
Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we’ll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner’s Insurance
Step 9: What to Expect at Closing
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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