There are several indicators FHA underwriters look at when determining a borrower’s eligibility and creditworthiness. One of these is income. Income relates to the borrower’s ability to repay the loan and is one of the factors in measuring whether the borrower is carrying too much debt.
FHA loan guidelines focus on income based on the previous two years of employment. The borrower must expect the income from their current employment to continue for the first three years of the mortgage. Underwriters like to see a stable employment history for that time period so that they have a reasonable base to use when calculating qualifying income.
While FHA guidelines prefer the borrower hold the same job with the same employer for the full two years prior to loan application, the guidelines make exceptions under certain circumstances. If a borrower has changed jobs but remained in the same field, then a job change is acceptable. The FHA looks favorably on frequent job changes within the same field that come with increases in benefits or income. In addition, if a borrower has recently graduated from school or training program and changed his job to one that reflected his field of study, this is also acceptable.
Commission income must be consistent over the full two-year period in order to count as income. FHA guidelines specifically prohibit using commission income if it has a history of less than one year. Even if it is within the same field and the amount earned is higher, the income from a commission-based job is not eligible after a move from a salaried one in this circumstance. The FHA makes an exception to this rule for those who remained in a similar job with the same employer, but whose compensation changed from salary to commission.
FHA guidelines require self-employed income to be consistent for a two-year period in order to be eligible. Since many businesses do not make money or fail during the first few years, underwriters want to be sure the income is stable and will continue, hence the two-year time frame. The only exception to this is if the borrower has two years of employment and income history in the same or related field prior to self-employment, and has been self-employed for over a year. Under no circumstances will an FHA underwriter count self-employment income with a history of less than one year.
Part-time income qualifies only if it has been with the same employer, or continual and stable for the previous two years. Sporadic part-time employment income is not eligible for inclusion as monthly income. A recent change of part-time jobs or frequent job changes may render that income ineligible.