FHA and the Self-employed Borrower - Part I

I have received numerous calls from self-employed borrowers since I posted an entry a while ago. I have decided to revisit this issue but I want to break it down in parts so that it is clearly understood. With the elimination of Stated loans (unless you have 25% to put down), self-employed borrowers need the facts on how to proceed on a fully documented loan using FHA.

So, here's your first tidbit for my caller in Texas who called and said, "A lender here told me I need a solid 2 years of self-employment in order to qualify for a FHA loan. Is that true?"

My response: Often the answer is yes. However, per Fannie Mae:

A person who has a shorter history of self-employment -- 12 to 24 months -- may be considered for a FHA loan, as long as the borrower's latest federal income tax returns reflect the receipt of such income for a 12-month period and he or she has a history of receiving income at the same (or a greater) level in a field that provides the same products or services as the current business or in an occupation in which the he or she had similar responsibilities to those undertaken in connection with the current business.

However, every file is different and must be taken as a whole. There's more to the story which we will cover in tomorrow's post. Stay tuned.