Sometimes, your current income is not enough to qualify you for an FHA loan, but your expected income or income that you will receive in the near future might boost you up high enough that your debt ratio is in line with FHA standards. Are you forced to wait until that income goes into effect or can you use it ahead of time? Of course, like everything else, every lender will have their own rules, but according to the FHA, you are able to use expected income if it means certain guidelines.
FHA Guidelines Regarding Expected Income
The first rule is that the income must be from a verifiable source. This includes:
- A raise from your employer
- Retirement income
- A new job
The exception to this rule is any money that you are expected to receive from a business that your family owns. In that case, you would have to wait until you made the income rather than relying on the “expected” receipt of the income as the relationships are too close for there to be honesty there.
If you have income that falls into one of the above categories, you need to be able to prove the income. This is the harder part as the proof has to be concrete in order for the lender to accept it. There are a few things that every lender will need to know in order to determine if the income is acceptable:
- The proof that the income will be received within the next 60 days. For example, if you are about to receive a performance raise, your employer can provide proof of the raise in writing based on something from your Human Resources file.
- The amount of the income needs to be provided as well. This means that the employer will need to provide in writing how much of a raise you are going to get and how it will affect your total income. If you are going into retirement, any type of agreement or anything you have in writing to provide the lender with regarding the amount and frequency of receipt will work.
- The date that the income is set to begin is also necessary. In order to be used on an FHA loan application, the money must be received within 60 days of the loan closing. The employer must be able to prove that the income will begin on the date that they state.
If you are about to start a new job, the offer letter can provide everything that you need the lender to know regarding your start date and the amount of income you will receive.
Getting the Required Information
The information that the lender will need to process an FHA loan with expected income is much more in depth than would be necessary for a loan where your standard income was used. Because of that, make sure that you allow enough time to get the documentation necessary from your employer. Everything that the lender needs has to come from a third party, which means that you need to have all of your ducks in a row in order to get the loan closed on time.
The most important thing to remember is that your income must be received within 2 months of closing the loan. If you have a raise that you are expected to receive say 6 months down the road or even 3 months down the road, it is not going to be able to be used in your qualifying income. You have to be able to prove that your income will be received within 60 days so that it can be used as a part of your debt ratio when your mortgage payments start becoming due. Every lender will require different scenarios when it comes to using expected income, so make sure to talk with several lenders to see what the best route is for you to take with your FHA loan.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.