HUD 4000.1 II.A.4.c.xii.C.2: The Exact Language on Military Income and ETS Dates
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. Let's go straight to the source language and what it means for a file sitting on a loan officer's desk right now.
The Verbatim Text
HUD 4000.1, Section II.A.4.c.xii.C.2, states: "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."
Two verification points are buried in that sentence: the ETS date itself, pulled from the LES, and the borrower's represented intent to continue serving. Miss either one and the income gets treated as unusable. Document both and it does not.
Why Lenders Get This Wrong
A situation that comes up often: a loan officer sees an ETS date inside the 12-month window and stops there, telling the borrower the income simply does not count. That is an incomplete read of the guideline. The rule is conditional, not absolute. It requires a specific documentation step, not an automatic exclusion.
Case Illustration
Sophie, an active-duty service member stationed near Hemingway, South Carolina, ran into exactly this. She had already used her VA entitlement on another property, which is why this particular purchase was being financed through FHA. Her ETS date landed inside the first 12 months of the new mortgage term, and the first lender she spoke with told her the military income was off the table entirely.
The Documentation That Fixes It
The path forward is narrow but clear. The borrower's intent to continue military service needs to be represented in the file, typically through a signed statement, and the file should cite Section II.A.4.c.xii.C.2 directly so the underwriter can see exactly which guideline is being satisfied. Pull the LES, confirm the ETS date precisely, then build the intent documentation around it.
What Borrowers Should Ask For
If 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 is the entire tactical ask. It is simple, it is specific, and it is exactly what the guideline requires.
A Product Note
It is worth noting that for most active-duty and veteran borrowers, VA financing is the better-fit product given entitlement benefits. FHA enters the picture in cases like this one, where entitlement has already been used elsewhere.
Talk to Someone Who Knows the Section Number
I am Jason Sharon, licensed mortgage broker at Home Loans Inc, licensed across South Carolina and several other states. If your file has an ETS date inside 12 months and you have been told your income will not count, call 843-569-7283 and let's build the documentation correctly.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.