Income and FHA Loan Approvals

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Private mortgage companies like 7^th Level Mortgage have established themselves over many years as THE lender to go to for all types of mortgages, including FHA lending. FHA lending is the easiest type of mortgage to qualify for and because all of these loans are backed by the US government, the rate of defaults on these loans is a lot lower than with a conventional mortgage. The type of income stream that a company like 7^th Level Mortgage is looking for is stability without too many bumps or drops in the income and with back end debt to income ratios expanded to 55%, 7^th Level Mortgage can get you into the home that you want without the worry of rents or payments increasing year in and year out if you are currently renting.

The income that every FHA lender looks for is that which can be proven. Every FHA lender will ask to see 2 years’ worth of income documents, whether it be W2’s, pay stubs or 1040 IRS returns. Before you begin looking into an FHA loan whether it be with 7^th Level Mortgage or any lender be sure that any credit issues that may show up are cleared before applying for the loan and if they cannot be cured. Then an explanation as to what happened to cause problems on your credit file will be needed. An example would be medical issues. From 2020 through 2021, COVID-19 hospitalizations have caused many people to take a hit on their credit and most lenders are aware that under a ruling from the CFPB, these situations are an acceptable reason why the income and credit issues may have arisen. The stability of your income will be viewed by the underwriter using the following guidelines:

• Does your employment and income show stability?
• What are your qualifications to remain in your current position?
• What is your previous training and education for the position?
• Will your employer confirm continued employment?

For conventional lenders, bankruptcies could prevent one from obtaining a loan but under FHA guidelines as long as the income and repair of the credit issues since the bankruptcy occurred can help satisfy FHA requirements. There are income limits in place and according to FHA Loan Requirements in 2021, they are as follows:

• 1 person household: $39,050
• 2 person household: $44,600
• 3 person household: $50,200
• 4 person household: $55,750
• 5 person household: $60,250
• 6 person household: $64,700
• 7 person household: $69,150
• 8 person household: $73,600

The way that these limits are determined is by the number of people who will be living in the home whether they are on the mortgage or not over the age of 18. Additionally, every state has limits as to the maximum purchase price. I recommend talking to a professional loan officer at 7^th Level Mortgage for the right loan that fits your particular situation. Because FHA lending limits are particular to the state and county in which you are purchasing, I have provided you with two charts to help you understand what these limits are.

These limits are influenced by the type of home and location. When you are looking into purchasing a home using FHA lending, keep in mind that the home must be your primary home. Second homes and investment properties are not insurable by the FHA and as such, if you are buying a duplex, triplex, or four-plex, you MUST occupy one of the units as your primary residence.

Family-owned, self-employed borrowers can qualify for an FHA mortgage under certain conditions. The documentation that is required to qualify for this type of program is signed copies of personal tax returns or a signed copy of the corporate return showing how much ownership interest you have in the business.

The following is what you can expect the underwriter at 7^th Level Mortgage to ask as part of the application for the loan if you are self-employed:

• Type of business structure or structures
• Minimum length of self-employment
• General documentation requirements for self-employed borrowers
• The TOTAL Scorecard Accept/Refer for self-employment
• Analyzing the business’s financial strength.

The key to obtaining FHA lending for a self-employed borrower is how the business structured. Is the business a(n): Sole Proprietorship; Corporation; LLC or “S” Corporation; Partnership

Because many people are new at running a business and most failures of a business occur within the first two years, you must show that you were in the same line of employment or have the education in the same line of work for a minimum of two years. The income analysis will be performed by the underwriter using the following documents:

• Signed, dated individual tax returns, with ALL applicable tax schedules for the most recent two years
• For a corporation, “S” corporation, or partnership, signed copies of Federal business income tax returns for the last two years, with all applicable tax schedules
• A year-to-date profit and loss statement, balance sheet, and
• A business credit report for corporations and “S” corporations.

An FHA underwriter is looking at the income trend or trends, over the previous two years. If a self-employed borrower is showing stability in the income stream and a steady increase in earnings, then qualifying for an FHA loan will likely occur because you are showing stability. If the debt to income ratios are where they need to be, but the income stream over the last two years has been showing a decline in earnings, then approval will be difficult because of the possibility of insolvency or dissolving of the business. In looking at your business, the underwriter at 7^th Level Mortgage will need to see the strength of your business including the source of the business’s income and the general economic outlook for similar businesses in the area.

As you can see, the income stream whether it be traditional W2 income or from self-employment is critical to determining whether or not you would qualify for an FHA loan. Although the requirements for an FHA loan are not as rigid as they are for a conforming, conventional loan, any one of these factors could be the difference between qualifying for FHA lending or not. It is extremely important that when your loan officer, processor, or underwriter, particularly at 7^th Level Mortgage, requests documentation or more detailed information about your particular loan file or situation you provide the information completely and as quickly as possible to avoid delays in processing, underwriting or closing. This compliance will also ensure that when you buy your home, the seller is not delayed because chances are, for him to complete the sale of the home to you; he is probably buying another one with a very clearly defined closing date as well.

For more information regarding FHA loans and other loan programs, contact 7^th Level Mortgage today.

7th Level Mortgage is a leading one-stop mortgage company providing deeply informed, custom-tailored assistance with each mortgage transaction phase. If you are searching for a home loan in New Jersey, Pennsylvania, Delaware, Maryland, New York, or Florida, please contact us today so that we can determine the best Mortgage Lender to place your loan with and get you the best possible rate and program.