What Income is Required for an FHA Loan?

Do I need two years employment for an FHA loan?

Income tax formThere is no time limit on how long a borrower must have worked at his or her present employment before applying for an FHA mortgage. In addition, the borrower must give proof of income for the past two years to the lender, and the lender must verify the applicant's job history.

Borrowers must explain any work gaps of one or more months, and Indicate if he/she has been in school or the military for the last two years, and provide documentation to back up this assertion, such as

  • transcripts from college, or
  • papers of discharge

Seasonal work, such as in the construction industry or agriculture, may be taken into account if the lender can prove it.

Self-employed: A borrower having a 25% or higher ownership interest in a business is classified as self-employed and will be assessed as such for underwriting purposes.

FHA Loan Employment Gap

When a borrower returns to work after an extended absence, his or her income may be considered effective and stable if he or she has been in the current job for six months or longer. And can document a two-year work history prior to the absence from employment using traditional employment verification and/or copies of W-2 forms or pay stubs.

A person who took many years off from work to raise children and subsequently returned to work is an example of an appropriate employment scenario.

Important: Employment circumstances that do not fulfill the above-mentioned requirements may only be regarded as compensatory considerations.

Six months is considered an extended absence.

FHA Guidelines on Commission Income

The preceding two years' commission revenue must be averaged. To qualify for commission income, the borrower must submit copies of signed tax returns for the last two years, as well as the most recent pay stub.

A reduction in commission revenue from one year to the next necessitates substantial compensatory considerations before a borrower can be accepted for the loan.

A borrower who has earned commission revenue for more than a year, However, less than two years may be regarded positively if the underwriter can demonstrate

  • record the probability of the income continuing, and
  • accepting the commission money is clearly justified.

Notes: Business expenditures that have not been repaid must be deducted from gross income.

A commissioned borrower is someone who earns more than 25% of his or her yearly income through commissions.

In place of signed tax returns, a tax transcript acquired directly from the Internal Revenue Service (IRS) may be utilized, and the cost of the transcript may be charged to the borrower.

FHA Income Analysis

Each borrower whose income will be required for the mortgage debt must be examined by the lender to determine if the borrower's income can be reasonably expected to remain for at least the first three years of the mortgage loan.

In most cases, a borrower's income is limited to wages or salary.

Other sources of income may be considered effective, provided the lender verifies and documents them correctly.

Notes: Effective income for a borrower who intends to retire within the first three years must include the amount of confirmed retirement benefits, Social Security payments, and other expected retirement payments. Lenders are not permitted to ask about prospective maternity leave.

FHA Seasonal Income

Seasonal income is considered continuous and may be used to qualify the borrower if the lender documents that the borrower has worked the same job for the past two years and expects to be hired again the following season. Umpiring baseball games in the summer or working at a department store during the Christmas shopping season are examples of seasonal jobs.

More information can be found at HUD 4155.1 4.D.2.h.


In conclusion, the FHA loan program offers a great opportunity for homebuyers who may not meet the traditional income requirements of other mortgage programs. With flexible guidelines and low down payment options, FHA loans can be a perfect fit for a wide range of buyers. If you are interested in purchasing a home, be sure to consult with a qualified lender to see if an FHA loan is right for you.

SOURCE: Section D. Borrower Employment and Employment Related

Recommended Reading

  1. FHA Loans: 10 Common Questions Answered
  2. FHA Amendatory Clause: Everything You Need to Know
  3. How to Get an FHA Loan After Bankruptcy