1. Stability of Income

Introduction

This topic contains information on determining a borrower's income stability, including

•	determining effective income

•	verifying employment history

•	analyzing a borrower's employment record, and

•	addressing a borrower's returning to work after an extended absence.

Change Date

May 10, 2009

4155.1 4.D.1.a Effective Income

Income may not be used in calculating the borrower's income ratios if it comes from any source that cannot be verified, is not stable, or will not continue.

4155.1 4.D.1.b Verifying Employment History

To be eligible for a mortgage, FHA does not require a minimum length of time that a borrower must have held a position of employment. However, the lender must verify the borrower's employment for the most recent two full years, and the borrower must

•	explain any gaps in employment that span one or more months, and

•	indicate if he/she was in school or the military for the recent two full years, providing evidence supporting this claim, such as
	–	college transcripts, or
	–	discharge papers.

Allowances can be made for seasonal employment, typical for the building trades and agriculture, if documented by the lender.

Total Scorecard Accept Recommendation

The TOTAL Scorecard Accept recommendation does not require an explanation for gaps in employment of six months or less, during the most recent two years.

Reference: For more information on seasonal employment, see HUD 4155.1 4.D.2.e.

4155.1 4.D.1.c Analyzing a Borrower's Employment Record

When analyzing the probability of continued employment, lenders must examine

•	the borrower's past employment record

•	qualifications for the position

•	previous training and education, and

•	the employer's confirmation of continued employment.

Favorably consider a borrower for a mortgage if he/she changes jobs frequently within the same line of work, but continues to advance in income or benefits. In this analysis, income stability takes precedence over job stability.

4155.1 4.D.1.d Borrowers Returning to Work After an Extended Absence

A borrower's income may be considered effective and stable when recently returning to work after an extended absence if he/she

•	is employed in the current job for six months or longer, and

•	can document a two year work history prior to an absence from employment using
	–	traditional employment verifications, and/or
	–	copies of W-2 forms or pay stubs.

Note: An acceptable employment situation includes individuals who took several years off from employment to raise children, then returned to the workforce.

Important: Situations not meeting the criteria listed above may only be considered as compensating factors. Extended absence is defined as six months, to remain constant with TOTAL.