FHA loans are government-backed, subsidized mortgages that offer a flexible and accessible way for people to purchase a home. Known for their low down payment and flexible credit requirements, FHA loans are popular among individuals with lower incomes who don’t have the traditional 20% down payment and a high credit score.
FHA loans can also be used to purchase single and multi-unit homes, condos and townhomes, and even manufactured or mobile homes.
To get approved for an FHA loan, lenders will look at a borrower’s previous and current employment for the past two years to ensure they have a steady income to repay the loan. It’s important to understand these guidelines and be prepared when applying for an FHA loan.
FHA Loan Income Requirements
As the FHA loan program is fairly flexible, there is no set minimum or maximum income limit to consider. Instead, the Federal Housing Administration and FHA-backed lenders look at the consistency and stability of the borrower’s income. The FHA and its lenders want to know you will be able to consistently meet repayments and not default on the loan.
The FHA will need to see proof of steady income over the past two years and will ask for information like pay stubs, W-2s, investment statements and annual tax returns.
FHA Loan Employment Requirements
In addition to income amount and the consistency, FHA guidelines require borrowers to provide a full two-year work history to the lender. But in most cases, there is no requirement on the minimum or maximum length of time you hold a position of employment.
FHA employment requirements may vary by lender, but all FHA-approved lenders will want information about your past employment record, position qualification, previous training and/or education and confirmation from your employer of continued employment.
Does Employment History Have to be at the Same Job for FHA Loans?
While lenders want to see a two-year work history, that doesn’t mean it has to be two years in the same job. You can have multiple different jobs with different employers during that two-year period and still qualify for an FHA loan.
That means you won’t have to wait a full year at your job to get approved for a mortgage. Instead, the lenders will just want to see that your income and employment have remained stable during that two-year window.
If you don’t have two years of full work history, don’t worry. The FHA will consider your application if those two years involve schooling or military service as long as you can document them or explain any employment gaps.
Does Employment History Have to be in the Same Field for FHA Loans?
On a similar note, if you’ve made a recent career change, you can still get an FHA loan.
Switching fields of work is not usually an issue when it comes to FHA loan eligibility. The lender will just want to see that your current job has a stable income and is likely to continue.
Are There Exceptions to the Two-Year Work History and FHA Loans?
Yes, there are some exceptions to this rule. You may be granted an exception if, during the previous two years, you have been a full-time student, active-duty military member, on medical leave or staying home to take care of children. If there are employment gaps, be aware that lenders may ask for additional documentation.
FHA Loan Gap in Employment Exceptions
The FHA does allow gaps in employment. You may be granted an exception if, during the previous two years, you have been a full-time student, active-duty military member, on medical leave or staying home to take care of children. The only rule is that the borrower must prove they were fully employed for six months before the FHA case number was first assigned.
If you have a gap in employment, you may be required to show proof of full employment for two years prior to this gap. Any gaps in employment that are longer than a month must be explained and documented where possible so that the lender can accurately assess and verify the information.
FHA Loan Employment Gap Scenarios and Required Documentation
The documentation required to explain employment gaps depends entirely on the reason for your employment gap. Here is information lenders want in relation to the following gaps in employment.
Recently left the military
You must be able to provide evidence for active-duty military. This requires documentation of discharge papers to the lender that explains when you were on active duty and when you left.
Left work to finish college
Some people take a break from employment to go back to college. In this case, you need to provide college transcripts to the lender to explain this employment gap.
Temporary leave situations
In the event you leave work temporarily for any reason during this period, you need to prove to the lender that you intend to return to work and have the right to do so.
If you had a medical condition that prevented you from working within the past two years, you will need to provide a letter from a physician. If you were receiving disability income benefits, you may have to give proof of this as well, depending on the lender's requirements.
More than three job changes in the last 12 months
While there’s no rule that you have to be in a certain job for a certain period of time to get approved for an FHA loan, lenders will look at job history closely. If your job history shows frequent job changes, more than three in a 12-month period, you will need to demonstrate why you made those job changes. For example, you may have gained employment qualifications or found a better salary in another job.
Less than two years of work history
In some cases, you might be in a position to buy a home, but lack the two years of full employment history. In this case, you will need to prove to the lender that you were enrolled in relevant training or education prior to your current role. A lender may also accept an employer letter verifying that you were hired based on skills from previous employment.
FHA Loan Self-Employed Guidelines
Does this mean that self-employed people cannot get an FHA loan? No, the good news is that although two years of work history is required, self-employment is included under this guideline. However, the rules for self-employment are slightly different and lenders will require different documentation to verify your income and employment status.
One of the FHA self-employed guidelines most lenders use is that the borrower must own at least 25% of the business. The type of business usually doesn’t matter. It can be a sole proprietorship, corporation, LLC, S-Corp or partnership.
The FHA and lenders especially want to know that you can make payments on the loan and have enough income from the business to do so. The documentation required to support this includes at least two years of individual and business tax returns, profit and loss statements prepared by a tax professional and balance sheets.
If you don’t have two years of these records, it can be difficult to get approved for an FHA loan. In some cases, you may be better off waiting until you have the full two years before applying for an FHA loan. Keep in mind that this does depend on the lender. Some lenders will make an exception to the two-year rule if you were employed in the same line of business before starting your own. In this situation, there is the indication that the business will be profitable and less risky because you already have experience in the field. However, this process isn't guaranteed, and not all lenders will accept it.
Lenders all have their own individual FHA loan employment requirements when it comes to assessing affordability. It’s worth speaking to an FHA loan specialist who can give you more specific advice on your particular situation. In the meantime, you can learn more about general FHA loan requirements to get a better idea of where you stand should you decide to apply.