How FHA calculates income?

Asked by Hunter, New York Mon Feb 25, 2013

My 2010 and 2011 tax returns and W2 shows 45% less income because i switched to a high paying job in mid of 2012 and now my current income support the Loan amount but bank asked for last 2 years tax returns and W2 when my income was less. If the look at my paycheck i am qualified for the loan but if they only consider 2010 and 2012 tax returns then i am not qualified. How do bank compute my income? will they use my current paycheck or they use 2 years average?

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Michael Denniston’s answer
Michael Denn…, Agent, Queens, NY
Wed Feb 27, 2013
Excellent question, great answers. I agree with Mark and would add that exceptions can be made depending on many factors. You should get a second or even third opinion if your current lender declines your loan or is unable to preapprove you. I have assisted several clients in situations that sound similar to yours to secure an FHA mortgage for their purchase or refinace. For more information and/or assistance, I can be reached directly at 917.699.0183 or via email at Follow me on Twitter @mdenniston247.

I value your feedback so please give the thumbs up, if my ressponse was helpful. Good luck!

Michael Denniston l Cell: (917) 699-0183
Residential Home Funding, Corp.
Licensed Mortgage Loan Originator l Sales Manager
6901 Jericho Turnpike Ste. 219 | Syosset, NY 11791
Main: (516) 605-1733 | Fax: (888) 881-2557
NMLS # 24076 | Company NMLS # 34973
0 votes
Javier Menes…, Mortgage Broker Or Lender, Melville, NY
Mon Mar 4, 2013
As mentioned below, if your new position is a salary paying job, they'll use your current income to qualify you. So for example, if the new job you started in 2012 pays you $3,000 gross every 15 days, this means that your monthly qualifying income is $6,500. They will check your 2012 W-2 and recent pay stubs to make sure that this bi-weekly income is consistent. If you're not paid a salary, but commission instead, they'll average the past 2 years (including year to date). If for some reason your 2012 commissions were less than 2011, they'll use the 2012 commission income.

If you're worried that they'll use your previous income simply because they asked for those tax returns, don't be! Lenders must document 2 recent years worth of tax returns as part of the 2 year employment history that's required. Just speak to your Loan Officer and make sure you're being qualified based on the right amount. Good luck!

Javier Meneses
Senior Loan Officer
NMLS #23130
310 Crossways Park Drive
Woodbury, NY 11797
(516) 606-9648
2 votes
Dan Tabit, Agent, Issaquah, WA
Mon Feb 25, 2013
Chances are they will average your income. Just because you recently started a higher paying job doesn't mean you will always have that income. They may not use a 24 month average, they may use 18 months which will give your current income more influence over the final number.
FHA rules change, so regardless of my or most answers here, you should discuss this with a great local lender who regularly does FHA. There is no risk in speaking directly with them to get the most up to date practices.
0 votes
Mark Fisher, Mortgage Broker Or Lender, Bronx, NY
Mon Feb 25, 2013
Hi Hunter, it all depends on how you are paid. If you are paid salary, meaning you make a set amount per year then they should go off of that income. If you are paid hourly then they will probably take a two year and year to date average. Feel free to contact me to discuss this further and explore possible options for you.
0 votes
Janet Nation,…, Agent, Baldwin, NY
Mon Feb 25, 2013
Whether FHA or conventional, lenders will average out your last 2 years. Second and third tier lenders tend to be more flexible with their guidelines and may take your new higher income into greater consideration.

Janet Nation, CBR
Sailing Home Realty
Direct: 646-321-9649
Office: 516-377-4760
Licensed Real Estate Salesperson
0 votes
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