FHA Loan Employment Guidelines
May 15, 2023
Are you worried about being denied an FHA loan because of a gap in employment? While it is important to remember that FHA loan standards for employment in HUD 4000.1 are not the only standards that are recognized, it is good to know what FHA loan rules instruct the lender to do as a minimum.
Additional lender standards may apply, but in general FHA loan rules, state law, lender standards, and even things that are considered “customary” in the local housing market all play a part in FHA loan approval and processing. What does HUD 4000.1 says about gaps in employment and frequent changes of employment? For starters:
“If the Borrower has changed jobs 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. The Mortgagee must obtain:
“For Borrowers with gaps in employment of six months or more (an extended absence), the Mortgagee may consider the Borrower’s current income as Effective Income if it can verify and document that…the Borrower has been employed in the current job for at least six months at the time of case number assignment; and…a two year work history prior to the absence from employment using standard or alternative employment verification.”
A brief gap would technically be acceptable under the FHA loan standard (not longer than six months). Could lender standards require such a work history even for shorter gaps in employment? That is possible, and permitted under the rules of the FHA single family mortgage loan program. Lenders can require stricter standards as long as those standards are applied according to the law.
Lender standards are often higher than FHA minimums. Additionally, state law, local practices considered reasonable and customary, and other factors could also factor into the loan approval process depending on circumstances. This applies to FICO score requirements, appraisal rules, issues where family members may be selling to one another, etc.
When in doubt, it never hurts to speak to a loan officer to ask what specific standards may apply at a particular financial institution or in a given housing market.
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Additional lender standards may apply, but in general FHA loan rules, state law, lender standards, and even things that are considered “customary” in the local housing market all play a part in FHA loan approval and processing. What does HUD 4000.1 says about gaps in employment and frequent changes of employment? For starters:
“If the Borrower has changed jobs 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. The Mortgagee must obtain:
- transcripts of training and education demonstrating qualification for a new position; or
- employment documentation evidencing continual increases in income and/or benefits.”
“For Borrowers with gaps in employment of six months or more (an extended absence), the Mortgagee may consider the Borrower’s current income as Effective Income if it can verify and document that…the Borrower has been employed in the current job for at least six months at the time of case number assignment; and…a two year work history prior to the absence from employment using standard or alternative employment verification.”
A brief gap would technically be acceptable under the FHA loan standard (not longer than six months). Could lender standards require such a work history even for shorter gaps in employment? That is possible, and permitted under the rules of the FHA single family mortgage loan program. Lenders can require stricter standards as long as those standards are applied according to the law.
Lender standards are often higher than FHA minimums. Additionally, state law, local practices considered reasonable and customary, and other factors could also factor into the loan approval process depending on circumstances. This applies to FICO score requirements, appraisal rules, issues where family members may be selling to one another, etc.
When in doubt, it never hurts to speak to a loan officer to ask what specific standards may apply at a particular financial institution or in a given housing market.
------------------------------
RELATED VIDEOS:
You're Almost There When You Get Your Loan Approval
Learn About the Mortgage Insurance Premium (MIP)
Pre-approval Starts the Mortgage Process
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