If you just landed a new job and you’ve decided to buy a house, getting an FHA (Federal Housing Administration) loan is one of your options to fund the purchase. Many people, like you, are asking “Can I get an FHA loan if I just started a new job?” The answer is yes.
You can get an FHA loan if you just started a new job as long as you have at least 2 years of verifiable employment history. Lenders may require you to provide your W-2s for the past 2 years along with your 30-day pay stubs.
How Long Do You Have To Be In Your New Job Before You Can Apply for an FHA Loan?
FHA-approved lenders need to prove that you have a stable and reliable income when deciding whether to approve your loan application or not. If you’re a buyer with a new job, you have to wait until you have pay stubs that cover 30 days before applying for a loan. Lenders may verify your employment by contacting your employer.
What if You Have Less Than 2-year Work History?
Mortgage lenders want to know if you can make payments on time. That’s why they’ll check if you have a reliable and stable source of income. According to the FHA employment guidelines 2021, applicants need to have at least a 2-year work history in their field.
However, there are cases when you may still qualify even if you have less than two years of work history in your field provided that you can prove development in that area. For instance, you may show that you’ve gone through a relevant training program that has significantly improved your skills. You may also be eligible if your recent employer hired you because of the skills you’ve gained from your past employer.
Are There Any Other Exceptions to the 2-year Work History Requirement?
You may still get an FHA loan or mortgage without 2 years work history requirement.
- Full-Time Student – You must present a copy of your college transcripts.
- Medical Condition – You must provide a letter from your physician explaining your medical condition and how it prevents you from working.
- Active Military Service – You must present a verified document stating that you’re in active military service.
Can You Get an FHA Loan if You Have a Period of Unemployment of More Than 6 Months?
If you have gaps in employment for six months or more, you may still be eligible for an FHA loan if you can prove that:
- You’re employed in your current job for at least six months since you applied for the FHA loan.
- You have at least a 2-year work history before the employment gap.
Can You Still Get an FHA Loan if You Missed Work Temporarily Due to Maternity, Paternity, or Disability Leave?
If you had to leave work temporarily because you had to go on a disability, maternity, or paternity leave, you may still be eligible for an FHA loan. The lender needs to verify that you intend to return to work, still have the right to work, and you qualify for the mortgage loan.
Can You Get an FHA Loan if You’ve Changed Jobs at least 3 Times in the Past 12 Months?
If you have changed jobs thrice within a span of 12 months, you have to prove the stability of your source of income. You have to provide transcripts of education or training that can prove that you have the skills or you’re qualified for a new position. You may also show employment documents that show continual increases in your income.
Can You Get an FHA Loan if You’re Self-Employed?
If you’re self-employed, you may be qualified for an FHA loan if you can prove that you own at least 25% of your business. You need to provide your personal and business tax returns for two years, balance sheets, and profit and loss statements.
What is an FHA loan?
An FHA loan is a government-backed mortgage that’s popular among first-time homebuyers. Unlike a conventional loan, an FHA loan has less stringent requirements, such as lower credit scores and minimum down payment. It’s a type of loan that is insured by the Federal Housing Administration. However, this agency, which is under the Department of Housing and Urban Development, won’t provide you with the actual mortgage. Instead, an FHA-approved bank, lender, or other financial institution, such as Quicken Loans and PennyMac, will issue the loan.
FHA loan borrowers are required to purchase mortgage insurance, which lowers the risk for FHA lenders. The premium payments are made to FHA, which allows it to pay a claim to the lender in case you default on your loan. There are two types of mortgage premiums that you need to pay for.
The first insurance premium amounts to 1.75% of the loan amount and is paid once you get the proceeds. If you’re unable or don’t want to pay it upfront, you can have it rolled over into your mortgage.
The second insurance premium you have to pay is the annual mortgage insurance premium, which ranges from 0.45% to 1.05% of the loan amount. It depends on how much you borrow, how long you plan to repay the loan (15 years or 30 years), and the initial LTV or loan-to-value ratio (loan amount versus the appraised value of the property you wish to purchase). The annual insurance premium is paid monthly and is calculated by dividing the total premium by 12 months.
After 11 years or once you’ve paid 90% of the value of your property and your payments are current, the FHA mortgage insurance premiums will be canceled.
Who is the FHA Loan for?
FHA loans are excellent options for people who are struggling to qualify for a traditional mortgage due to their low credit scores or inability to meet the required minimum down payment.
Why Should You Apply for an FHA Loan?
An FHA loan is an excellent option if you’re looking for an affordable mortgage. If you have a low credit score or you’re unable to save up for the 20% down payment that conventional mortgage lenders require, then this type of loan is for you.
What are the Requirements to Get an FHA Loan?
The general requirements for an FHA loan are as follow:
- You must be a US citizen.
- You must have a valid Social Security number.
- You must provide proof of employment and income by presenting your original pay stubs, W-2s, and written verification of employment from your employer.
- You must make a minimum down payment of 3.5% of the purchase price if you have a credit score of at least 580.
- You must make a minimum down payment of 10% of the purchase price if you have a credit score of at least 500.
- You must use the house you wish to purchase as your primary residence.
- Your debt-to-income ratio (divide your monthly debt by your gross income per month) must not go beyond 43% of your gross income.
- You must have no history of bankruptcy over the past two years.
- You must have no history of foreclosure in the last three years.
What are the PROS of FHA loans?
- You can apply even if you have a low credit score (as low as 500 FICO score)
- Down payment requirements are low even if you have a poor credit score. (3.5% for a minimum credit score of 580 and 10% for credit scores between 500 and 579).
What are the CONS of FHA loans?
- You are required to pay a mortgage insurance premium, upfront, and annual insurance premiums (collected monthly).
- There’s a limit to the loan amount.
Check this post for a more detailed explanation of the downsides of FHA loans.
How to Apply for an FHA Loan?
Here are the steps you need to follow when applying for an FHA loan.
- Review your credit score. A credit score of at least 580 will require you to make a down payment of 3.5% of the purchase price. A lower credit score, ranging between 500 and 579, requires a 10% down payment of the purchase price.
- Check your budget. Find out if you can afford the mortgage repayments. You should also factor in the mortgage insurance premiums, which you’ll be required to pay, the property taxes, as well as the Homeowner’s Association (HOA) fees.
- Your debt-to-income ratio must not go over 43% if you want to have higher chances of getting approved.
- Save enough money for the down payment.
- Find an FHA-approved lender and get prequalified.
Where Can You Apply for FHA Loans?
If you have a credit score of 500, you can check Carrington Mortgage Services and Freedom Mortgage. If you have a credit score of 580, visit Quicken Loans and PennyMac. If you have a credit score of 600, you can try AmeriSave Mortgage.
FHA loans are great options if you’re a first-time home buyer looking for a mortgage with less stringent requirements. If you landed a new job, you can still apply for this type of loan as long as you can prove that you have at least a 2-year work history. But there are exceptions to this rule including being a full-time student, serving in the military, and having a medical condition. Just like any other type of loan, you need to do your research first. You have to understand the ins and outs of FHA loans so that you can make an informed decision.