Confused about how FHA counts income...

goodygoody · ‎09-29-2012

Hi there! My husband and I would really love to buy our first home this summer, but I'm so confused about how our income will be calculated, hoping someone has a good grasp of this. We are planning to use FHA. We both have credit scores a little above 700. No negatives on our reports. Available credit around $10,000 each with UTI around 10%. So I think our credit will be fine. What I'm worried about is the income stuff.

My husband has been an electrician for about 4 years, and makes about $37,000 a year. I have been working part-time for a year, making around $10,000. I am starting a new job in October, however, that pays $24,000, in basically the same field (college support staff). Prior to a year ago, I was a stay at home mom for several years, with small children at home.

Last year, my father passed away, leaving me a small inheritance (around $20,000), which I will report on our 2012 tax return.

So I have a bunch of questions, hoping someone can help!!

Does FHA just average your income for 2 years of tax returns to determine what you qualify for? Do they take into account if you have recently started making a larger income in this determination? (i.e. - what consideration will I get for my new job)

Will FHA count my inheritance toward our 2012 income?

Another poster here once said that FHA will count income if you've worked less than 2 years IF you were a homemaker with small children. Is this accurate? Does anyone have experience with this? Is there an actual FHA policy about this, or is it up to the lender? Anyone know which lenders are more flexible about this? We'd really love to buy a house, but we have to be able to count my income in order to get a decent sized loan for our area. Will we have to wait another year?

Thank you thank you in advance. Any advice is appreciated!!

Anonymous · ‎09-29-2012

They will not count the inheritence as income. For Part Time they will take your last 2 years of reported income(w2) and average them. Since your husband is full time they will use his last 2 paycheck to calculate what his current income is.

goodygoody · ‎09-29-2012

So I guess if I want my income counted, we really have to wait another year to buy? Because I won't have 2 years until September, and we want to move over the summer so that we don't disrupt the kids' school.

Any way around this? Is there any validity to the other poster's comment when they said that FHA will count the income if I was a housewife prior to a year ago? Also, to clarify, does it matter that I will be full-time beginning in October? Will they count it at that point?

I'll be really sad if we have to wait yet another year to have our own home.

Anonymous · ‎09-30-2012

Not necessarily. My guess is they will take this years "projected" salary and last years and average them that way. Your best option would be to meet with a mortgage broker or a loan officer and get the numbers ran. Good luck!

StartingOver10 · ‎09-30-2012

@goodygoody wrote:
So I guess if I want my income counted, we really have to wait another year to buy? Because I won't have 2 years until September, and we want to move over the summer so that we don't disrupt the kids' school.

Any way around this? Is there any validity to the other poster's comment when they said that FHA will count the income if I was a housewife prior to a year ago? Also, to clarify, does it matter that I will be full-time beginning in October? Will they count it at that point?

I'll be really sad if we have to wait yet another year to have our own home.

I'm not a LO, but a Realtor that works with a lot of FHA buyers.

I have never known FHA to use projected income. IME they use actual income, this is why they require tax returns and paystubs and verification with tax transcripts directly from the IRS. BTW this is an FHA underwriting requirement, not a lender requirement. There are lender overlays, but in order for the loan to be insured by FHA you have to have the income to support the purchase.

Is your husband's income 1099 type or is it W-2 type income? Does he write off business expenses or not?

If he writes off expenses, then the lender will look at his adjusted gross income.

Speak directly with a loan officer to get your actual figures in line. Speak with a LO that is preferably with a mortgage banker/broker outfit rather than a big box bank. The big box banks have a variety of loan officers and not all of them are well trained. JMO.

Jazzzy · ‎09-30-2012

@goodygoody wrote:
Hi there! My husband and I would really love to buy our first home this summer, but I'm so confused about how our income will be calculated, hoping someone has a good grasp of this. We are planning to use FHA. We both have credit scores a little above 700. No negatives on our reports. Available credit around $10,000 each with UTI around 10%. So I think our credit will be fine. What I'm worried about is the income stuff.

My husband has been an electrician for about 4 years, and makes about $37,000 a year. I have been working part-time for a year, making around $10,000. I am starting a new job in October, however, that pays $24,000, in basically the same field (college support staff). Prior to a year ago, I was a stay at home mom for several years, with small children at home.

Last year, my father passed away, leaving me a small inheritance (around $20,000), which I will report on our 2012 tax return.

So I have a bunch of questions, hoping someone can help!!

Does FHA just average your income for 2 years of tax returns to determine what you qualify for? Do they take into account if you have recently started making a larger income in this determination? (i.e. - what consideration will I get for my new job)

Will FHA count my inheritance toward our 2012 income?

Another poster here once said that FHA will count income if you've worked less than 2 years IF you were a homemaker with small children. Is this accurate? Does anyone have experience with this? Is there an actual FHA policy about this, or is it up to the lender? Anyone know which lenders are more flexible about this? We'd really love to buy a house, but we have to be able to count my income in order to get a decent sized loan for our area. Will we have to wait another year?

Thank you thank you in advance. Any advice is appreciated!!

Unless I'm not understanding something correctly, this amount of inheritance will not be taxable income. Not sure why you would report it on your tax return.

goodygoody · ‎09-30-2012

We were told that inheritance must be reported as income (though this amount would not be subject to the inheritance tax - just regular tax?). Is this wrong? It would actually be a relief if we don't have to report it, because we usually get a decent refund, and I've been worrying that we may end up owing money or something because of this.

goodygoody · ‎09-30-2012

My husband has regular W-2 income. He doesn't take any business deductions.

I guess we'll have to wait till spring and then sit down with a mortgage person to see what we qualify for. Can they just run the numbers without a hard inquiry? I don't want to do an inquiry if we can't get a large enough loan.

goodygoody · ‎09-30-2012

Just checked on the IRS site, and discovered that the inheritance is NOT taxable after all. Happy about that, anyway! The estate administrator gave me bad information...

StartingOver10 · ‎10-01-2012

@goodygoody wrote:
My husband has regular W-2 income. He doesn't take any business deductions.

I guess we'll have to wait till spring and then sit down with a mortgage person to see what we qualify for. Can they just run the numbers without a hard inquiry? I don't want to do an inquiry if we can't get a large enough loan.

They can run your figures without pulling credit. If you want to show them your free reports from annualcreditreport.com so they can see the body of the report, you can. But naturally until they run the credit they can't issue a pre-approval. But you should be fine just having them give you where your ratios are now and what you qualify for without having the LO run your CR