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Are you interesting in purchasing a home with another person? When two people want to apply for an FHA mortgage loan together, there may be situations where one borrower comes to the FHA loan process trying to make up for the financial or credit shortcomings of the other borrower.

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FHA Loan Articles

News and Updates for Homeowners

Income Verification and FHA Rules For Co-borrowers

September 14, 2015 - Are you interesting in purchasing a home with another person? When two people want to apply for an FHA mortgage loan together, there may be situations where one borrower comes to the FHA loan process trying to make up for the financial or credit shortcomings of the other borrower. For example, can a borrower with less verifiable income be offset by the borrower who earns more?

In these cases, lender standards may apply, but it’s also helpful to understand basic FHA loan requirements for income, as found in HUD 4155.1 (at the time of this writing) Chapter Four Section D. This portion of the FHA loan rulebook says:

“The lender must analyze the income of each borrower who will be obligated for the mortgage debt to determine whether the borrower’s income level can be reasonably expected to continue through at least the first three years of the mortgage loan.”

Furthermore, the rulebook states that In most cases, “a borrower’s income is limited to salaries or wages. Income from other sources can be considered as effective, if properly verified and documented by the lender.”

In some cases two borrowers may be applying for a new purchase loan when one of the co-applicants has plans to retire in the near future. In those circumstances, “Effective income for a borrower planning to retire during the first three-year period must include the amount of
  • documented retirement benefits
  • Social Security payments, or
  • other payments expected to be received in retirement.”
Some may wonder if part-time income counts as “verifiable income”. Can the lender use this employment also? Chapter Four says yes, as long as the part-time job meets certain requirements:

“Part-time and seasonal income can be used to qualify the borrower if the lender documents that the borrower has worked the part-time job uninterrupted for the past two years, and plans to continue. Many low and moderate income families rely on part-time and seasonal income for day to day needs, and lenders should not restrict consideration of such income when qualifying these borrowers.”

And for FHA loan co-borrowers who have had a part-time job for less than the required two years, Chapter Four states, “Part-time income received for less than two years may be included as effective income, provided that the lender justifies and documents that the income is likely to continue.”

The amount of income and its likelihood to continue are important factors in the FHA loan application, but your debt-to-income ratio is also very important. It’s good to review these areas carefully before applying for your new home loan.