FHA Loan Employment Requirements and Work History

A job application with a gap in employment history is sitting on top of a pen and paper.An FHA loan can be an excellent financing option for eligible homebuyers thanks to low down payments and flexible credit standards. However, borrowers must meet particular FHA employment and income requirements to qualify.

This comprehensive guide explains the critical FHA loan job and income policies borrowers should understand before applying.

FHA Minimum Job Length

Most lenders require that FHA borrowers be employed in their current job for at least 12 months to qualify. FHA does not explicitly require 12 months, but a stable income history is crucial for approval.

Being in your current role for under 12 months does not automatically disqualify you. However, additional documentation is likely needed to confirm your consistent and reliable income to support the mortgage payment. This other documentation may include pay stubs, W-2 forms, tax returns, and employment verification from your employer. Lenders want to ensure that you have a steady and reliable source of income to make the mortgage payments on time.

Suppose you have recently changed jobs but are still in the same field or industry. In that case, lenders may consider your past employment history, education, and training to determine your stability and ability to repay the loan.

It's important to note that different lenders may have specific requirements, so it's always a good idea to reach out to multiple lenders to understand their policies and find the best fit for your situation. 

What if You Haven't Been in Your Job for 12 Months?

If you have been in your current role for less than 12 months, the lender can supplement your income documentation in a few ways:

  • Obtain W-2s from prior years documenting a stable earning history
  • Get a written VOE from your employer confirming previous employment in the same field
  • Provide a reasonable explanation for changing jobs supported by documentation
  • Meet minimum workflow history standards if self-employed
  • Include non-borrower household income to help you qualify if applicable

The goal is to substantiate that you have a steady and dependable income to afford the mortgage, even with less than 12 months on the job. Additional conditions may apply, but you can still potentially get approved.

What Types of Jobs Qualify for FHA Loans?

Nearly any legal, stable job or income source is permissible with FHA loan programs. This includes:

  • W-2 employees of companies and corporations
  • Self-employed borrowers
  • Those paid on 1099 independent contractor agreements
  • Commission-based income
  • Seasonal workers with an adequate history
  • Military members and veterans
  • Benefits like social security, disability, child support
  • Retirement, pensions, annuities
  • Rental income from investment properties

Many income sources beyond just W-2 employment can potentially be used to qualify for FHA financing.

FHA Job History and Income Stability Guidelines

FHA does not mandate a minimum tenure in the same line of work as conventional loans. However, you must exhibit reliable and consistent income over the previous 2-3 years.

For W-2 employees, this income history is derived primarily from your base salary. Significant pay increases or decreases must be explained and documented.

Self-employed borrowers have more detailed income documentation requirements, which we'll explore next.

Income Stability Standards for Self-Employed Borrowers

For self-employed borrowers, FHA establishes minimum workflow history standards to qualify.

Self-employed borrowers must demonstrate:

  • At least two years of self-employment in the same business
  • Stable or increasing income over time
  • Adequate income from the company to cover living costs plus the mortgage
  • Consistent workflow and earnings via paperwork trail

Required Income Documentation

To confirm these income requirements, self-employed borrowers must provide:

  • Two years of personal and business federal tax returns
  • Year-to-date profit and loss statement
  • Two months of business bank statements
  • Fully completed and signed IRS 1040 forms

This paperwork trail documents both regular self-employment income and ongoing business workflow.

Alternative Income Documentation for Self-Employed

Meeting standard FHA income documentation requirements is preferred. However, alternative documentation can be used case-by-case for self-employed borrowers.

Examples of alternative income verification if traditional docs aren't available:

  • CPA-prepared financial statements with federal tax returns for prior year
  • Federal tax returns for the most recent two years with balance sheet CPA letter
  • Fully completed and signed IRS 1040 forms for the past two years
  • Audited year-to-date profit and loss statement and two months' business bank statements

Unacceptable Income Sources for FHA Loans

While FHA allows alternative documentation in many cases, some income sources are not permitted:

  • Temporary or inconsistent income sources lacking a year's history
  • Business income reinvested rather than distributed
  • Lump sum payments like bonuses, commissions, or capital distributions
  • Any undocumented or unverifiable sources

Income must be fully documented with stable sources to meet guidelines.

Non-Borrower Income May Be Included

Non-borrower household income can be counted towards total qualifying income in specific scenarios. This includes:

  • Spouse's income
  • Domestic partner's income
  • Rental income from tenants or boarders
  • Family members residing together combining income

All non-borrowers must sign an affidavit consenting to their income being used.

Job Changes After Loan Approval

The mortgage must be re-underwritten if you change jobs after being approved for your FHA loan. The lender will verify the new employment and income source.

Delaying any job changes until after closing is strongly recommended. Starting a new position before closing could jeopardize your approval if the lender cannot confirm the new income meets the requirements.

The Bottom Line on FHA Loan Job Requirements

While flexible, FHA does establish baseline job and income standards borrowers should meet. Having less than 12 months on the job or changing jobs before closing can create challenges.

Knowing FHA income documentation guidelines ensures the mortgage process goes smoothly. Ensure your income sources and employment history align with FHA requirements before moving forward with approval.

With extra planning and diligence, you can feel confident your job situation and income will check the box for FHA loan eligibility.