Required FHA Income & Assets

Required FHA Income & Assets

Income Guidelines

In order to qualify for an FHA loan, all income must be analyzed to ensure that it is sufficient to cover the mortgage and other obligations of the borrower. Also, the stability and likelihood of the income continuing must also be analyzed. Income from any source that cannot be verified, is not stable, or will not continue may not be used in calculating the borrower’s income ratios.

Debt Ratios

Debt Ratios are the relationship between ones income and ones expenses. Ratios are generally expressed as two numbers like 29 over 41 or 29/41. These are standard FHA ratios. The first number, the 29, represents the relationship between the borrower’s income and his new housing expense of principal, interest, taxes, insurance, and HOA’s. A borrower who makes $3,000 per month and has a housing expense of $870 would have 29% top end ratio.
The other number of 41% represents the total monthly debt, including the housing expense and all other debt such as credit cards, loans, child support, etc. Thus in our example of the borrower that makes $3,000 per month and had a total expense of $1,230, would have 41% bottom ratio.


With the use of automated approvals, a borrowers ratios can exceed the guidelines above. Also, with compensating factors a borrower may be able to exceed the ratio guidelines.

Stability of Income

FHA does impose an arbitrary minimum length of time a borrower must have held a position to be eligible. However, the lender must verify the borrower’s employment for the most recent two full years. If a borrower indicates he or she was in school or in the military during any of this time, the borrower must provide evidence supporting this such as college transcripts or discharge papers. The borrower must also explain any gaps in employment of a month or more.



Allowances for seasonal employment, such as is typical in the building trades, etc,. may be made.
The lender or underwriter is looking to show a steady source of constant earnings. Borrowers with frequent job changes generally show a lack of stability. Also, large swings or changes in income will also lead an underwriter to question the stability of the income. A borrower who changes jobs frequently within the same line of work, but continues to advance in income or benefits should be considered favorably.

Assets

Though FHA doesn’t require assets in the bank to close on a loan, each mortgage consultant might have you put a cushion in the bank of at least 2 months of all your expenses with a minimum of 2 months of mortgage payments.