Job History and Income Requirements
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Can you help me understand how Kentucky Mortgage loans backed by FHA treats job gaps?
Answer:
A borrower must have a full 2-year history of employment/school/military service immediately prior to application. If there are any extended gaps within that 2-year period then the “Addressing Gaps in Employment” guideline is triggered, even if the gap did not occur immediately prior to the current job.
Reference:
FHA ML 2022-09 – this version has not yet been updated in the 4000.1 handbook , but must be used.
(B) Addressing Gaps in Employment
For Borrowers with gaps in employment of six months or more (an extended absence), the Mortgagee may consider the Borrower’s current income as Effective
Income if it can verify and document:
• that the Borrower has been employed in the current line of work for at least six months at the time of case number assignment; and
• a two-year work history prior to the absence from employment using standard or alternative employment verification.
Job Gap—The application will call for you to document your last two years of employment history. If you have had several jobs, or job gaps of more than 6 months, you will need to document why you were off work and why you made the changes in your job. The underwriter is looking for stability in your pay and job. If you were in school recently, then the underwrite may want to see transcripts to verify this.
Kentucky FHA Mortgage Program
The FHA Program does not technically have an minimum employment history requirement but lenders are required to verify applicants' employment history for the prior two years
Applicants are required to explain any employment gaps of at least one month
Explainable employment gaps of six months or more are also permitted
Self-employed borrowers are typically required to demonstrate a two year job history
A self-employed job history of between one and two years is permitted if the applicant was previously employed in a similar line of work for at least two years
A combination of one year of employment in a similar field plus one year of education or training in that field is also permitted for self-employed borrowers
An uninterrupted two year history of part-time employment is typically required although part-time work history of less than two years may be considered as long as the lender determines that the work is likely to continue
Income from seasonal employment is also permitted as long as the applicant has a two year work history and expects to be rehired for future seasons
A two year employment history is required for bonus, commission or overtime income to be considered
An employment history of less than two years is allowed if the lender justifies and documents the reason for including the income
Lenders are also required to explain any significant declines in bonus, commission or overtime income
Significant fluctuations in bonus, commission or overtime income may require the lender to use an average period of longer than two years to calculate the applicant's income
The FHA Program does not technically have an minimum employment history requirement but lenders are required to verify applicants' employment history for the prior two years
Applicants are required to explain any employment gaps of at least one month
Explainable employment gaps of six months or more are also permitted
Self-employed borrowers are typically required to demonstrate a two year job history
A self-employed job history of between one and two years is permitted if the applicant was previously employed in a similar line of work for at least two years
A combination of one year of employment in a similar field plus one year of education or training in that field is also permitted for self-employed borrowers
An uninterrupted two year history of part-time employment is typically required although part-time work history of less than two years may be considered as long as the lender determines that the work is likely to continue
Income from seasonal employment is also permitted as long as the applicant has a two year work history and expects to be rehired for future seasons
A two year employment history is required for bonus, commission or overtime income to be considered
An employment history of less than two years is allowed if the lender justifies and documents the reason for including the income
Lenders are also required to explain any significant declines in bonus, commission or overtime income
Significant fluctuations in bonus, commission or overtime income may require the lender to use an average period of longer than two years to calculate the applicant's income