Can the 2 year work history be waived on a FHA loan? unique situation.

Question

Hello everyone, I would like to have a FHA loan for my first investment property and put down 3.5% as down payment. even though I don't have a two year work history, I have 6 months of great bank statements. Making 10k a month and I also have 100k cash and a credit score off 755-780. Would I still be able to have a chance of getting approved? Also would they want me to put more down since I have huge cash reserves? any advice or info would be great!

Andrew Postell · Answer

@Sidney Garcia Thanks for posting.  Obviously, be careful about ALL information you get on the internet.  The right thing to say here, of course, is speak to your loan officer.  But the first thing you need to be aware of - you cannot buy an investment property with an FHA loan.  Now, sometimes the words we speak aren't what we truly meant...so, if you meant, I want to buy my first property that I will live in and use to "house hack" or "rent out the rooms" or something of that nature...then yes, FHA is allowed.   You must occupy the property.  That's why we don't use the term "investment property" when speaking about FHA.  Investment property means a property you don't live in.  So, depending on what you mean...FHA may not even be able to be used no matter what your income history.

Now, secondly, your income history is CRITICAL to FHA financing.  You CANNOT qualify for an FHA loan if you ONLY have 6 months of work history.  Period. Your high credit score WILL NOT HELP WITH THIS.  Now, if you said "Well, I only have 6 months of work history because I was in college, and my degree from college is in the field I work in"...ok, then FHA does allow for this type of scenario. Or if you said, "I've only got 6 months at my current employer and I was working in the same field at a different employer previously"...ok, FHA allows for that too.  So, if you have MORE than just 6 months, then it is treated differently.  Likewise, if you are self-employed for 6 months - then you are out entirely.  FHA will require that type of income to be reported on your tax returns for 2 years.

There's more things to know here as well....which is why it's always good to speak with a loan officer specifically.

Hope all of this makes sense.

Lorien Rollins · Answer

Tagging my favorite LO @Wyatt Wolff

Stacy Raskin · Answer

FHA loans are underwritten by an algorithm unless they turn into a manual underwrite. The loans follow guidelines that are uniform across lenders. FHA loans generally require two years of employment unless you recently graduated school that helped you prepare for your current employment.

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 have to show proof of full employment for two years prior to this gap. Any gaps in employment that are longer than a month may have to be explained and documented where possible so that the lender can accurately assess and verify the information.

FHA loans also look at your DTI. Front-End DTI Front-end DTI only includes housing-related expenses. This is calculated using your current monthly mortgage or rent payment, including property taxes and homeowners insurance as well as any applicable homeowners association dues.

Back-End DTI Back-end DTI includes all your minimum required monthly debts. In addition to housing-related expenses, back-end DTIs include any required minimum monthly payments your lender finds on your credit report. This includes debts like credit cards, student loans, auto loans and personal loans. Your back-end DTI gives the lender a more complete picture of your monthly spending.

Erik Estrada · Answer

Hey Sidney,

If you have an offer letter from your new employer, or last 30 days of most recent paystubs and a bachelor's degree in the field you are working in, you may qualify with limited work history. Lenders will count your degree as 2 years work history

Stephanie Medellin · Answer

The amount of money you have available doesn't determine how much of a down payment is required, so no, even though you have additional reserves, you don't have to put that toward the property.  There may be other reasons you need a higher down payment, such as only qualifying for a smaller loan amount.

Due to the shorter work history, it will depend on the makeup of your monthly income.  Is a lot of this bonus / overtime / commission, or is it all salary?  You will need a longer history of earning those variable income types if using a degree to supplement your work history.

As mentioned above, if you truly want to buy an investment and you won't be living in the home,  investment properties don't qualify for FHA loans.

Wyatt Wolff · Answer

Hey Sidney!

What kind of investment are we talking about? FHA does not allow investment properties, realistically the only one you can get away with is a house hack.

That said, there are other low down payment options that you can get into! Hope this helps!

Jay Thomas · Answer

You can still get approved for an FHA loan for your first investment property with only 6 months of work history. FHA loans are more lenient on work history, but your lender will want to see a stable income. Your high credit score and cash reserves help. With a credit score of 755-780, you can qualify with a low down payment. Your lender may recommend a higher down payment based on property value and your financial situation. To improve approval chances, get pre-approved, provide documentation of income and assets, and be honest about your financial situation, including any credit issues.

Can the 2 year work history be waived on a FHA loan? unique situation.

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