The Quick Read: Yes, all three can count, as long as each one passes its own history and continuance test. An FHA cash-out refinance uses the same income rules as an FHA purchase loan. Part-time pay and overtime generally need a two-year track record and a good reason to expect them to continue. Social Security needs documentation and an expected duration of at least three years. Subject to lender guidelines and full file review.
How Does an FHA Cash-Out Treat Income at All?
An FHA cash-out refinance does not use a special, stricter income standard. The lender sorts your income into types, tests each type against HUD’s history rules, and adds up what survives. HUD describes Handbook 4000.1 as the consolidated source of FHA single-family policy, and its income sections follow a definition, standard and documentation pattern.
Across the wholesale programs Lendmire places FHA files with, the income conversation almost always starts the same way. What do you earn, how long have you earned it, and will it keep coming? Those three questions decide most outcomes.
The cash-out itself adds a separate set of tests. The home generally must have been owned and occupied as your primary residence for 12 months before the case number is assigned. The new loan reaches up to 80% LTV on an appraised (adjusted) value. Income gets you through the ratio test. Equity gets you through the LTV test. You need both.
Lendmire’s FHA cash-out refinance program page lays out the program envelope in more detail.
At a Glance: The Three Income Types
| Income type | Usually counts? | What the lender looks for | Common reason it’s excluded |
|---|---|---|---|
| Part-time | Yes | Two years, uninterrupted | Gaps or a recent start |
| Overtime | Yes | Two years, likely to continue | Declining or irregular pay |
| Social Security | Yes | Documented, 3+ years expected | Award ends within three years |
Does Part-Time Income Count on an FHA Cash-Out?
Part-time income counts when you have held the job without interruption for two years and it is reasonably likely to continue. It means work that is not your primary job and usually runs under 40 hours a week. The lender averages it over those two years.
That averaging matters. If a second job paid more last year than the year before, the lender doesn’t use the higher figure. It blends the two. A gig that started eight months ago, however steady, typically stays out of qualifying income.
Picture a nurse with a full-time hospital job who has worked weekend shifts at a clinic for three years. The clinic income has a clean history, so it generally enters the file as a two-year average. Now picture a teacher who started tutoring this past spring. That income may be real, but it usually hasn’t aged enough to count.
Seasonal and variable-hour work follow the same logic. The lender wants the pattern to be consistent from year to year.
What About Overtime, Bonus and Tip Income?
Overtime counts when you have received it for two years and it is likely to continue. A shorter history of at least one year can work if the file documents consistent earnings. The lender then uses the lesser of two averages: the two-year average or the average over the most recent year.
That “lesser of” step is where borrowers get surprised. A good recent year doesn’t pull the number up. A weak recent year pulls it down.
| Overtime pattern | Likely treatment |
|---|---|
| Rising year over year | Lower (blended) figure is used |
| Flat and steady | Figure holds, easiest to document |
| Falling recently | Lower recent figure governs; may need explanation |
Older versions of the handbook included a rule about sharp drops from one year to the next. Treat that detail as something to confirm against current guidelines rather than a fixed number. In practice, a declining trend invites questions about whether the income will continue, and a lender can decide it won’t.
Overtime also has to be “likely to continue.” A one-time surge from a project or a temporary staffing shortage doesn’t help. Steady overtime tied to your regular schedule does. Employer verification often settles it.
Does Social Security Income Count?
Social Security counts when it is documented and likely to continue for at least three years from application. That includes retirement, SSDI and SSI. HUD Mortgagee Letter 12-15 is the original rule, and the handbook carries it forward.
A lender typically verifies receipt with one of these:
- Federal tax returns
- A recent bank statement showing Social Security deposits
- An SSA proof-of-income letter
- The SSA-1099 benefit statement
It also documents continuance with your last Notice of Award letter or an equivalent.
Two points trip people up. First, a disability benefit doesn’t trigger a medical review. The CFPB’s bulletin on disability income notes that lenders may not ask about the nature of a disability or a borrower’s medical condition. Second, if your award letter has no defined expiration date, the income is treated as likely to continue.
If the benefit is due to expire within three years, it can’t serve as qualifying income. It may still help as a compensating factor. A benefit that hasn’t started yet generally counts only from its start date.
Retirement doesn’t disqualify anyone.
What about the gross-up?
Some Social Security income is non-taxable, and HUD’s glossary recognizes that. A lender may increase the non-taxable portion on paper, since you keep more of it than taxable income. That raises qualifying income and can lower your debt ratio. It does not change what you actually pay each month. The exact percentage a lender applies should come from its reading of the current handbook. Tax status is the IRS‘s call, and tax treatment can depend on your situation. Borrowers should speak with a qualified tax professional before relying on any deduction or credit.
How Do the Three Combine Into One Qualifying Income?
The underwriter adds each qualifying stream together and compares the total to your proposed housing payment and total debts. FHA’s base ratio pair is 31/43 (housing over total) with no compensating factors. Documented compensating factors can reach 40/50 at the top tier, and the automated finding governs most files.
Run it as a household story. A borrower has base pay, a weekend part-time job with a three-year history, steady overtime for two years, and a spouse drawing Social Security retirement. Each stream is tested separately. The part-time income is averaged over two years. The overtime uses the lesser of its two averages. The Social Security uses the documented current monthly amount. The sum is what the ratios see.
Now suppose the part-time job is removed from the file. The total drops, the ratio rises, and the cash-out amount may shrink or the file may not work. Each stream either helps or doesn’t, and an excluded one just disappears from the math.
What Documents Should You Gather?
Gather these by income type. The exact list varies by lender, so treat this as the general shape.
- Part-time and overtime: pay stubs, W-2s and traditional personal-income documentation covering the history period, plus employer verification if requested.
- Social Security: the SSA award or benefits letter, plus proof of receipt such as a bank statement, tax return or SSA-1099.
- Property and loan: your current mortgage statement and homeowners insurance, since the new loan must cover the payoff, closing costs and financed fees.
If your pay stubs and W-2s don’t line up, explain it before the lender asks. Mismatches without an explanation are a common reason income gets set aside.
Why Income Gets Excluded (and What to Do About It)
Lenders exclude income they can’t document, can’t average cleanly, or doubt will continue. The usual causes are gaps in history, a recent decline, cash pay with no paper trail, and an award that ends within three years.
If your income falls short today, you have options. You can wait until the history ripens, which for part-time work and overtime usually means reaching the two-year mark. You can add a co-borrower whose income qualifies. You can ask a loan officer how a smaller cash-out amount changes the ratios. And you can compare programs, because other loan types set different tests. Fannie Mae’s conventional guide, for instance, does not require a continuance check for retirement or long-term disability benefits on the borrower’s own work record. The wholesale lenders vary, and some set a higher floor than others.
Key Terms Defined
Effective income: the income a lender actually counts after testing its history and likelihood of continuing.
Likely to continue: the lender’s judgment that an income stream will last, based on documents and history.
Gross-up: a paper increase to non-taxable income so it compares fairly with taxable income.
Adjusted value: the appraised value used to set the 80% LTV ceiling on an FHA cash-out. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Compensating factors: documented strengths, such as savings or a strong credit profile, that can support higher ratios.
Is This the Same as the “No Tax on Overtime” Deduction?
No. Searchers often confuse the two. A tax deduction affects what you owe the IRS. Qualifying income is what a lender counts for a loan. A tax rule doesn’t change how a lender tests your overtime history.
What Does the Cash-Out Do to Your Budget?
A larger loan plus FHA mortgage insurance changes your monthly obligation. FHA charges an upfront premium of 1.75% of the base loan, which can be financed, and an annual premium that depends on term, loan amount and LTV. On a thirty-year loan above 90% LTV the annual premium lasts for the term. At or below 90% it ends after eleven years. A cash-out at 80% LTV falls in that second group, though the details depend on your file. Closing costs and financed fees come out of the 80% ceiling, so they reduce the cash you receive. You also keep roughly 20% equity after closing.
HUD updates Handbook 4000.1 through Mortgagee Letters, and its housing handbooks page tracks the latest update. Check current guidelines before you rely on any detail.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
Frequently Asked Questions
Can I use overtime if I’ve only had it for a year?
Sometimes. A history under two years may count if the file documents consistent earnings for at least one year and the overtime is likely to continue. The lender uses the lesser of the two-year and most recent one-year averages, so the figure may come out lower than you expect.
Does disability income get extra scrutiny?
No medical review is allowed. Lenders may not ask about your condition or the nature of your disability. They verify the benefit with SSA documents, and an award letter with no end date is treated as likely to continue.
Will a second job count if it started recently?
Usually not on its own. Part-time income generally needs two years of uninterrupted history. A recent second job may still help indirectly, since savings or strong credit can serve as compensating factors.
Does cash-out change the income rules?
No. FHA uses the same income rules for a cash-out as for a purchase. What changes is the equity test: the new loan reaches up to 80% LTV on a home you’ve owned and occupied as your primary residence for 12 months. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Can I use a cash-out on a rental or second home?
No. FHA cash-out is for a primary residence, and occupancy decides the leverage.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For current guidelines, see FHA loan programs.
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References
1. HUD Single Family Handbook 4000.1
3. CFPB bulletin on disability income
4. IRS
5. Fannie Mae Selling Guide B3-3.4-15
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Can You Get an FHA Cash-Out If Conventional Turned You Down? · FHA Cash-Out Documentation for a Retiree on Pension and Social Security · How to Close an FHA Cash-Out in a Trust on Retirement Income
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.