Income received from a state- or county-sponsored organization for providing temporary care for one or more children may be considered acceptable stable income if the following requirements are met.
Comparison of Guidelines for Foster Care Income by Loan Type
Different loan programs have different rules for foster care income. Below is a comparison table summarizing how each major loan type treats this income, plus their documentation and gross-up allowances:
Loan Program | Use of Foster Care Income | Required History | Continuance Required | Documentation Needed | Gross-Up (Non-Taxable) |
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FHA (HUD) | Allowed if stable and ongoing. Counts in DTI. | 2 years providing care. Less if strong case rarely. | Must be “reasonably likely to continue” (no fixed 3-year proof, just no evidence of stopping). | Letter from agency verifying 2-year history & payments. | Up to 15% increase (if tax-free). |
Conventional (Fannie Mae) | Allowed if stable. Counts in DTI. | 2 years history OR 12+ months if ≤30% of total income. | No need to document 3-year continuance explicitly. | Letters from paying organization verifying income. | Up to 25% increase (standard for non-taxable income). |
Conventional (Freddie Mac) | Allowed if stable. Counts in DTI. | 2 years consistent receipts (no short history exception mentioned). | Should likely continue 3+ years (no lender proof required unless doubts). | Agency letters; potentially proof of continued foster placement if available. | Up to 25% increase (standard for non-taxable income). |
USDA (Rural) | Not allowed as qualifying income for loan repayment. | N/A – income not counted. | N/A – income not counted. | N/A – they exclude foster payments entirely. | N/A (income can’t be used, so gross-up doesn’t apply). |
VA (Veterans) | Not counted toward DTI; used only to offset foster care expenses. | No specific requirement (generally needs consistent history if considered for offset). | N/A for DTI (but must show current foster placement to offset dependents). | Possibly agency letter if using to offset residual requirement. | Generally 25% if used for ratios (but main income listed as net). |
Legend: DTI = Debt-to-Income ratio (used for loan qualifying ratios).
Understanding Foster Care Income in Mortgage Approval
What counts as foster care income?
It’s generally the stipend paid by a state or county agency to you for providing care to a foster child or adult. This income is typically non-taxable (it won’t show up on your tax returns). Lenders can count it only if it’s stable and likely to continue, and they may even “gross it up” (increase it) since it’s tax-free.
Key considerations for using foster income:
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History of Income: Most programs want a track record (often 12–24 months) of you providing foster care and receiving payments.
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Documentation: You’ll need official verification, usually letters from the agency that pays you.
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Continuance: Lenders want to know the income is likely to keep coming. Some require proof it will continue for 3 more years, while others are satisfied if no evidence suggests it will stop.
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Portion of Total Income: If foster payments are a small part of your total income, some rules are more flexible. For example, Fannie Mae will allow just 12 months of history if foster income is ≤30% of your total income.
Foster care income, typically provided by state or county-sponsored organizations to caregivers, and AFC income for adult care, are forms of government assistance. Their eligibility for mortgage qualification depends on the loan type and underwriting guidelines of agencies like FHA, Fannie Mae, Freddie Mac, VA, and USDA.
Given the variability in lender practices and agency policies, this analysis aims to clarify conditions for using such income, drawing from multiple sources including mortgage blogs, official guides, and expert articles, with a focus on Kentucky’s unique programs.
The guidelines for using foster care and AFC income vary across loan types. Below is a detailed breakdown, organized by agency and loan program, based on recent findings as of April 2025.
Documentation Requirements
Across loan types allowing foster care income, documentation is critical to verify stability and continuity. Common requirements include:
A letter from the state or county organization providing the foster care income, confirming amount, payment schedule, and expected continuation.
Copies of the borrower’s signed federal income tax returns, particularly 1099s for non-employment income, to establish history.
Bank statements or deposit slips showing regular deposits of foster care payments, ensuring consistency.
For FHA loans, additional verification may involve checking state agency guidelines and the age of individuals in care, reflecting the unique nature of foster care.
The table below summarizes the key guidelines for each loan type, highlighting the minimum history, continuance requirements, and documentation needed:
| | | | | |
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| | | | | Foster income cannot be considered for qualification. |
| | | | 1099s for 2 years, 24-month average for calculation | Must be from state/county-sponsored organization. |
| | 12 months (if ≤30% of total gross income) or 2 years | | Letter from organization, verification of 2 years receipt | If 12 months, income must not exceed 30% of total gross income for qualification. |
| | 24 months (averaged like commission) or 2 years | | Letter from organization, verification of receipt, state agency guidelines, age of children | Same as Fannie Mae for 12 months/2 years, must verify stability and continuance. |
This table illustrates the variability in requirements, with Fannie Mae and FHA offering more flexibility for shorter histories under certain conditions, while Freddie Mac and VA/USDA impose stricter or exclusionary rules.