FHA Guidelines for Employment Gaps

If you receive a mortgage backed by the Federal Housing Administration, you may be able to purchase a home with a lower down payment. You might also get mortgage insurance coverage at lower rates. But first you must qualify to receive the loan. To do this you must meet certain criteria, including employment criteria. For example, when determining whether you qualify for financing, FHA loan officers review gaps in your employment history. How you answer questions about employment gaps may help determine whether or not your loan is approved.

FHA Employment Gap Guidelines

The type of information required on FHA loan applications includes addresses you have lived at for the past two years, your checking and savings account information, types and amounts of other loans you currently have and your Social Security number. If you are applying for a loan with someone else, both you and the co-signer must provide your Social Security numbers. Additional required information includes your gross monthly salary, value of your personal property and the names and addresses of employers you worked for during the past two years.

Self-Employed Work

All gaps in employment lasting longer than a month must be explained on FHA loan applications. If you have a gap in employment because you started your own business and became self-employed, state this on your application. You must also provide documentation that verifies your net income. For example, you can submit copies of your tax returns and documents that list your gross receipts and stable expenses you had for your business. Furthermore, should there be periods when your gross income decreased since you became self-employed, you should be prepared to explain this income change to the FHA loan officer assigned to review your loan application. For example, if your gross income decreased because you completed fewer freelance projects during the summer to travel on vacation with your family, you should be prepared to explain this to an FHA loan officer.

Using Retirement Income

Although the FHA does not set a limit on the minimum amount of income you must earn to qualify to receive a loan, it does require you to prove that you receive a stable income. If you tell the FHA a job gap in employment was because you were laid off, you may still be able to qualify for a loan if you present documentation that verifies you receive Social Security retirement benefits, a pension or other form of retirement payments. Additionally, if you plan to retire within three years of applying for a FHA loan, include amounts of Social Security payments, pensions, disability payments and other payments you expect to receive while you are retired.

Credit Score Requirements

In addition to submitting documentation that explains all gaps in employment as well as documentation that verifies you receive a stable income, to qualify to receive an FHA loan you may have to meet credit score guidelines. For example, you may need a credit score of 620 or higher to get a loan. If your credit score is less than 620, you can contact an FHA counselor; this person can work with you, offering you guidance and advice on steps you can take to improve your credit score. Limits on the amount of money you can receive from an FHA loan vary by state. However, loan limits generally increase for larger types of homes, such as duplexes versus smaller single-family homes.

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