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       FHA  Income Documentation          

In order to qualify for an FHA loan, all income must be analyzed to ensure that it is sufficient to cover the mortgage and other obligation of the borrower. Also, the stability and likelihood of continuance must also be analyzed. Income from any source that cannot be verified, is not stable, or will not continue may not be used in calculating the borrower’s income ratios.

DEBT RATIOS: On April 13, 2005 HUD increased the allowable debt ratio for manually underwritten loans to 31/43.  Debt Ratios are the relationship between ones income and ones expenses. Ratios are generally expressed as two numbers like 31 over 43 or 31/43. These are now standard FHA ratios. The first number, the 31, represent the relationship between the borrowers income and his new housing expense of principal, interest, taxes, insurance and homeowner dues. A borrower who makes $3,000 per month and has a housing expense of $930 would have a 31% top end ratio.

The other number of 43% represents the total monthly debt, including the housing expense and all other debt such as credit cards, loans, child support, etc. Thus in our example of the borrower that makes $3,000 per month and had a total expense of $1,290, would have a 41% bottom ratio.

With the use of automated approvals, a borrower’s ratios can exceed the guidelines above and may go has high as 50%. Also, with compensating factors a borrower may be able to exceed the ratio guidelines

STABILITY OF INCOME: HUD does impose an arbitrary minimum length of time a borrower must have held a position to be eligible. However, the lender must verity the borrower's employment for the most recent two full years. If a borrower indicates he or she was in school or in the military during any of this time, the borrower must provide evidence supporting this such as college transcripts or discharge papers. The borrower must also explain any gaps in employment of a month or more.

Allowances for seasonal employment, such as is typical in the building trades, etc., may be made.

The lender or underwriter is looking to show a steady source of constant earnings. Borrowers with frequent job changes generally show a lack of stability. Also, large swings or changes in income will also lead an underwriter to question the stability of the income. A borrower who changes jobs frequently within the same line of work, but continues to advance in income or benefits should be considered favorably.






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