How long must stable income be documented according to FHA guidelines?

The duration for which stable income must be documented according to Federal Housing Administration (FHA) guidelines is two years. This requirement is in place to ensure that borrowers have a consistent income history, which is a critical factor in assessing their ability to repay a loan. By looking at a two-year period, lenders can gather enough information to understand the borrower's financial stability and income trends. This practice helps mitigate the risks involved in lending by identifying whether the income is reliable and likely to continue.

In the context of loan underwriting, documenting income for two years allows for a comprehensive view that takes into account any fluctuations or potential changes in the borrower’s earning capacity. It is standard for lenders to evaluate full documentation of income, including wages, bonuses, and any additional income sources, to create a full picture of the borrower’s financial standing. This thorough assessment plays a significant role in the FHA’s goal of promoting responsible lending practices and ensuring that borrowers are set up for success in managing their mortgage obligations.