If Your ETS Date Falls Inside 12 Months, Here's the FHA Rule Lenders Are Actually Citing
If you are active duty, your contract ends inside the next 12 months, and a lender just told you your military income will not count for your FHA loan, this is the rule they are actually talking about. It catches a lot of service members by surprise, and it is not as final as it sounds.
Sophie's Situation
Sophie is stationed near Hemingway, South Carolina. She had already used her VA entitlement on another property, so for this next home she was applying FHA instead. Everything looked fine until the lender pulled her LES and saw her Expiration Term of Service date fell inside the first 12 months of the proposed mortgage. The response she got was that her military income could not be used at all.
That is where a lot of files get stuck, not because the income is actually disqualified, but because the lender stopped reading the rule one sentence too early.
What the Guideline Actually Says
FHA's HUD 4000.1 guidance states it plainly: "The Mortgagee must verify the Expiration Term of Service date on the LES. If the Expiration Term of Service date is within the first 12 months of the Mortgage, Military Income may only be considered Effective Income if the Borrower represents their intent to continue military service."
Read that closely. It does not say the income is excluded. It says the income may still be considered Effective Income, provided the borrower represents an intent to continue serving. That is a documentation requirement, not a denial.
Where This Lives in the Manual
This exact rule sits in HUD 4000.1, Section II.A.4.c.xii.C.2. Knowing the section number matters, because it gives your loan officer something specific to cite when building the file, instead of leaving the underwriter to interpret the LES on their own.
How a File Like This Gets Built Correctly
For a situation like Sophie's, the fix starts with pulling the LES and confirming the exact ETS date. From there, the borrower's intent to continue military service gets documented directly in the file, backed by a signed statement. That statement, paired with the citation to II.A.4.c.xii.C.2, is what allows the income to be counted as Effective Income rather than excluded.
The One Thing to Ask For
If you are active duty, applying FHA, and your ETS date falls inside the next 12 months, ask your loan officer to document intent to continue military service in the file, citing Section II.A.4.c.xii.C.2, and provide a signed statement confirming that intent. That single request is often the difference between a file that gets rejected and one that moves forward.
A Note on VA Entitlement
Sophie's situation also illustrates why FHA was the right product for her specific case: she had already used her VA entitlement on another property. For most active-duty and veteran borrowers, VA financing remains the better-fit option. FHA becomes relevant when entitlement has already been committed elsewhere or another specific circumstance applies.
Next Steps
If your contract end date is inside the next 12 months and a lender has told you your income will not count, do not treat that as the final word. Ask for the documentation path. I am Jason Sharon, licensed mortgage broker at Home Loans Inc, and I work through HUD 4000.1 regularly with active-duty borrowers across South Carolina. Call 843-569-7283 and let's look at your file together.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
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