FHA (Federal Housing Administration) loan program was established in 1930s after the great depression. The current rules require lenders to verify the employment of the buyer, how long they’ve been employed, duration of the job, and how much they’re paid.
For all Employment related Income, the Mortgagee verifies the Borrowers most recent two years of employment and income, and document by utilizing the following: employee verification written or electronically, or “alternative” methods of verification which may include pay stubs or deposit statements, plus telephone verification of the borrower’s work status. Lender standards may require additional steps.
But there are additional requirements for employment verification when it comes time for the lender to verify the borrower’s income:
For those paid hourly, and whose hours do not vary, the Originator must consider the Borrowers current hourly rate to calculate Effective Income. For employees who are paid hourly and whose hours vary, the Originator must average the income over the previous two years. If the Mortgagee can document an increase in pay rate the Originator may use the most recent 12-month average of hours at the current pay rate.
The Originators may consider Self-Employment Income if the Borrower has been self-employed for at least two years.
If the Borrower has been self-employed between one and two years, the Originator may only consider the income as Effective Income if the Borrower was previously employed in the same line of work in which the Borrower is self- employed or in a related occupation for at least two years.
There may be additional requirements for any or all of these areas depending on lender standards. FHA loan rules are not the only ones that may affect how the lender must verify information such as work history or income-state law, lender standards or other regulations may apply.
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