Wednesday, October 25, 2017

Kentucky FHA, VA, Fannie Mae and USDA Income Guidelines for Job time Employment and Income Requirements For Mortgage Loan Approval.

Income Guidelines and Job History Employment and Income Requirements For Mortgage Loan Approval in Kentucky

FHA requires you to establish that the income is in fact stable. I am covering Time on Job, Part Time Income, Seasonal Income and Job Gaps below.

Time on Job

There is not a minimum length of time a borrower must have held a position for the income to be eligible. However, the application must identify the most recent 2 years of employment.
If the borrower’s employment history indicates that they were in school or in the military, then the borrower must provide evidence supporting this such as college transcripts or discharge papers.
The current type of employment has to be supported by the college transcripts or discharge papers showing that he borrower’s training enabled them to gain employment in their field of training.

Part Time Income 

Part-time and second job income can be used to qualify if documentation is obtained to prove that the borrower has worked the part-time job uninterrupted for the past two years, and plans to continue.
For Qualifying purposed, “part-time” income refers to jobs taken to supplement the borrower’s main income from regular employment, such as a second job that is less than 40 hours per week.
Income: Is averaged over the previous 2 years. If there was a pay rate increase and we can document the increase in pay, you can average the new pay rate over 12 months.

Seasonal Income

Seasonal income may be acceptable for qualifying. It is not unusual to have out-of-season income from unemployment income. If the borrower has a 2 year history and continuance is probable, this type of income may be allowed to qualify the borrower.
The key here is history and continuance.

Job Gaps

The borrower must provide a signed explanation for gaps in employment as follows:
Income can be considered effective if the following can be verified:
1. Borrower has been employed in the current job for at least six months at the time of the case number assignment AND
2. A two year work history prior to the absence from employment.


Gaps in Employment
  • A borrower who has no verifiable employment for 6 months or longer is deemed to have a gap in employment. 
  • Fannie:  Fannie does not address gaps in employment in their guidelines.  We must ensure that DU’s income documentation can be met.  This will typically require the borrower’s most recent paystub and a W-2 from the most recent year. 
  • FHA:  borrower must be employed at their current job for 6 months or more at the time of case number assignment and a 2 year work history prior to the gap can be documented.

Medical or Temporary Leave Income
  • The borrower has taken a temporary leave of absence from work typically for medical leave such as maternity, illness, surgery, or on the job injury.  This leave is short term in nature and the borrower is still employed with their same employer prior to the leave of absence. 
  • Fannie & FHA: If the borrower will return to work prior to the first mortgage payment date, the borrower’s regular employment income can be used for qualifying.  If the borrower will not return to work prior to the first payment date, the lesser of the temporary leave income (if any) or regular employment income must be used for qualifying. If temporary leave income is less than regular employment income, the borrower may use available liquid reserves to calculate supplemental income per Fannie guidelines. The employer must also verify the borrower intends to return to work and has the right to return to work.

Frequent Job Changes
  • Frequent job changes may indicate instability in a borrower’s income.
  • Fannie: Individuals who change jobs frequently but who are nevertheless able to earn consistent and predictable income are considered to have a reliable flow of income for qualifying purposes.
  • FHA: If the borrower has changed employers more than three times in the previous 12 month period or has changed lines of work requires additional underwriter analysis to determine job stability.  This may include but is not limited to documentation of training and education for new employment or documentation evidencing continual increases in income or benefits.

Seasonal Employment
  • Seasonal Employment refers to employment that is not year round typically due to weather conditions.  Seasonal Employment can be full time or part time.
  • Fannie & FHA:  Borrower must have worked the same job (or same line of seasonal work) for the past 2 years and the borrower’s employer must state there is a reasonable expectation that the borrower will be rehired for the next season.  Tax returns will be required if unemployment compensation will be used to qualify the borrower. 

*Income calculation will follow calculation guidelines.  These guidelines are for employment history and profile only.

W2 Income Tips
Income plays a significant role when applying for a mortgage loan. Underwriters must follow both DU and agency guidelines when it comes to documenting and calculating qualifying income for a loan transaction. Income guidelines may vary slightly depending on the loan program and the borrower’s employment profile. Below are some general tips for W2 income.   

Documentation that may be required
  • Paystub with year to date gross earnings
  • At least 1 year’s W2
  • Verbal or full VOE

Base Pay
  • Salaried and fixed hourly income is calculated by averaging the gross year to date income 
  • Variable hourly income is calculated by averaging 12 month history
  • Commission and tip income is calculated by averaging over 24 months
  • No transcripts are required for salaried, hourly, or less than 25% commission W2 income borrowers
  • Unreimbursed expenses do not have to be deducted from the gross pay for salaried, hourly, or less than 25% commission W2 borrowers

Overtime, and Bonus Income
  • Overtime and Bonus can be used as effective income as long as it’s been received for 2 years and is reasonably likely to continue
  • Periods of less than 2 years may be considered as long as it’s been consistently earned over a period of at least 12 months and there are positive factors to offset the shorter history of receipt per underwriter discretion
  • Overtime and Bonus income must be documented by a full VOE
  • Declining overtime and bonus income cannot be used for qualifying income

Part Time Income
  • FHA requires a 2 year history of working multiple jobs
  • Fannie will allow less than 2 years as long as it’s been consistently earned over a period of at least 12 months and there are positive factors to offset the shorter history of receipt per underwriter discretion

Self Employed Income
• A borrower is considered self employed if they have 25% or more ownership in a business.
• Contract or 1099 employees are self employed borrowers
• There are 4 types of self employed business structures
o  Sole Proprietorships
o  Corporations
o  Limited Liability Company (LLC)
o  Partnerships

Tax Returns are always required for a self employed borrower.  Depending on the business structure, the borrower may have business returns in addition to their personal tax returns.

1099, Sole Proprietorships, and LLC self employed borrowers typically file Schedule C on their personal tax returns

Corporations and Partnerships will file Business Tax Returns in addition to their personal returns.  The business returns will include K1’s listing the borrower’s ordinary business income and percentage of ownership.

Corporation and Partnerships may also have W2 income in addition to their K1’s.

All self employed income is calculated per agency guidelines

Self employed income requires a 2 year history. 

Declining self employed income typically cannot be used unless allowed by specific agency of loan program

Joel Lobb
Senior Loan Officer

American Mortgage Solutions, Inc.
10602 Timberwood Circle, Suite 3
Louisville, KY 40223

text or call my phone: (502) 905-3708
email me at

The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people. NMLS ID# 57916, ( Mortgage loans only offered in Kentucky.
All loans and lines are subject to credit approval, verification, and collateral evaluation and are originated by lender. Products and interest rates are subject to change without notice.
Joel E Lobb
American Mortgage
email us here
Kentucky FHA, VA, USDA & Rural Housing, KHC and Fannie Mae mortgage loans.