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Not all of your income may be eligible to be counted toward your debt-to-income ratio. The lender is required to insure that any income that is used will be likely to continue, and is also stable. Stability and reliability of income means some kinds of earnings won’t count.

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Qualifying Income for an FHA Mortgage Loan

Qualifying Income for an FHA Mortgage Loan
June 28, 2019 - Some borrowers get confused when trying to qualify for an FHA mortgage loan because they do not understand the FHA requirement for qualifying income. Doesn’t ALL income count for loan purposes?

The short answer is no, not all of your income may be eligible to be counted toward your debt-to-income ratio. The lender is required to insure that any income that is used will be likely to continue, and is also stable.

Stability and reliability of income means some kinds of earnings won’t count. You can’t, for example, predict how your future income generated from selling goods on eBay might go; that’s one reason why it cannot be classified as “reliable” by your lender.

Commission income, by comparison, can count IF the borrower can demonstrate a long enough history of earning commissions and the pattern of those commissions is established through your pay records.

FHA home loan rules require the lender to take into account the amount of time you have been earning the income whether it’s commissions, self-employed earnings, tips, and other types of pay. If you have been self-employed for less than one year, it’s unlikely your lender can justify your self-employment income in such a short period.

But if you have been running your own business for two years or more, you may find that the lender has a much easier time since there are records of earnings, profit and loss, etc.

Some borrowers are on public assistance, earn retirement pay, or have other financial issues that may be easy to misunderstand when it comes to FHA mortgage loan approval. What you should know is that public assistance is able to be counted as stable income if it meets FHA loan requirements.

The same goes for retirement pay, certain kinds of investment returns or 401(k) programs, etc. These are all able to be counted as income for loan approval purposes if the income meets FHA loan requirements.

You cannot be denied a loan simply because your income source includes retirement pay, assistance, etc. But those funds must meet FHA loan standards for duration, reliability, and potential for future earnings.

As always, it’s never safe to assume you DO NOT qualify for a home loan-let the lender make the call and remember that it pays to shop around for a participating FHA lender as some may have more flexible loan approval standards that can help a first-time home buyer or someone coming back to home ownership.

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