"We Have Been Fostering for a Year. Can Those Payments Count as Income on a Mortgage?"

Often, yes. Fannie Mae expects a two-year history of foster care payments, and it will still count them with twelve months as long as they are no more than thirty percent of the total gross income used to qualify. Freddie Mac and FHA both want the full two years. VA does not treat the payments as income at all, and instead uses them to adjust the household size in its own calculation.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, NMLS #483943, through C2 Financial Corporation, licensed in fifteen states.

A licensed foster home is usually the same home a family has been hoping to make bigger, whether that means another bedroom, a yard, or a school district that will not change on the next placement. The money the county pays arrives every month on a schedule, and the question is whether a lender is allowed to look at it while you are shopping.

What does a lender mean by foster care income?

Money paid to you by a state or county sponsored organization for providing temporary care for one or more children.

Fannie Mae gives it its own named section in the Selling Guide and says the income may be considered an acceptable stable income source when the requirements below are met (B3-3.4-07, Foster-Care Income, revised 03/04/2026). Freddie Mac files it under the same heading in its own guide, alongside other income that does not come from a job or from self-employment (Section 5305.1, Requirements for all other income, revised 08/05/2026). FHA calls it a foster care payment and defines it the same way, as payment from a state or county sponsored organization for providing temporary care (Handbook 4000.1, II.A.4.c, section Q).

Two things follow from where it appears in the guides. It is income rather than a reimbursement, so nobody nets it against what you spend on the children. And it is read under a section of its own, so a loan officer who says it never counts is usually thinking of the general two-year rule rather than of the section that governs it.

Why does a twelve-month history sometimes work?

Because Fannie Mae wrote an exception into that section, and the exception comes with a math test you can run on your own numbers.

The guide says a two-year history of providing foster care services is expected. Then it names the shorter path. If you have not received this type of income for two full years, it may still be counted as stable income when you have at least a twelve-month history of providing the services. The second condition is that the income does not represent more than thirty percent of the total gross income used to qualify for the loan (B3-3.4-07).

Most income in a file has to show two years before anyone will use it, and the reason lenders want two years of everything is that a short history cannot show whether a number is stable or just recent. The exception comes with a condition attached to it. The newer income has to stay the smaller share of what you earn, so that the income you have already documented for two years is doing most of the work.

The thirty percent is measured against your total gross qualifying income, which includes the foster care payments themselves. Add the payments to whatever else your lender is counting, take thirty percent of that total, and see whether the payments land under it.

Do the four loan programs read it the same way?

They do not, and the differences decide which program your file is built around.

Program	History it wants	How the monthly figure is calculated
Fannie Mae (conventional)	Two years expected; twelve months works when the payments are no more than thirty percent of total gross qualifying income	Stable or increasing, average the most recent 12 or 24 months to match the history used. Decreasing, average the most recent 12 months only
Freddie Mac (conventional)	Most recent two years, with no twelve-month exception	A 24-month average
FHA	A two-year history of providing the services and receiving the payments	The lesser of the two-year average and the one-year average
VA	Not counted as effective income	Used to offset the cost of caring for the children in the residual income calculation

So the same payments get read four different ways. If you are at fourteen months, Fannie Mae's section is the only one of the four with a shorter path written into it, which makes this a conversation about which program the file goes to.

Freddie Mac asks for evidence of receipt across the most recent two-year period and calculates on a twenty-four month average. FHA wants a two-year history of providing the services and receiving the payments. It then calculates on the lesser of the two-year average and the one-year average, so a year trending upward gets measured by the lower figure.

What does VA do with foster care payments instead?

VA leaves them out of effective income, which is its name for the income a loan is qualified on, and puts them to work somewhere else in the file.

The VA Lenders Handbook says the lender may include verified income received specifically for the care of any foster children. It may do that only to balance the expenses of caring for those children against any increased residual requirements (Pamphlet 26-7, Chapter 4, Topic 2). The handbook's own example is a family receiving a stipend for two foster children living in the home. Instead of using a family size of four, the lender uses a family size of two when it figures the residual income requirement.

Residual income is VA's own test. It asks how much money is left every month after the mortgage, the taxes, the insurance and your other obligations are paid, and the required figure rises with family size and with where you live. So on a VA loan the payments do not raise your income and they do lower the bar you have to clear. How BAH and BAS work on a service member's file covers the rest of the residual income picture.

What does your lender need to see?

Two documents, and one of them usually takes longer to arrive than people expect.

When you're ready, please provide the letter of verification from the state or county organization that pays you, showing the payment amounts. We will need the most recent twelve or twenty-four months of proof that the payments actually arrived, so please provide your complete bank statements for that period, all pages, even if the last page is intentionally left blank. Cancelled checks or another electronic record of the payments work in place of statements when that is what you have.

That pair is what Fannie Mae asks for: letters of verification showing the payment amounts, and receipt of the income documented for the most recent twelve or twenty-four months (B3-3.4-07). FHA asks for a written verification of the payment from the organization providing it, plus documentation of the two-year history.

You will want to ask the placing agency for the letter early. It goes through a caseworker or a licensing worker rather than through a payroll system, and a request that would take an employer an afternoon can take an agency two or three weeks.

If your statements also show other deposits a lender is going to ask about, what a paper trail on a deposit actually means covers how that part gets handled.

Will anyone ask whether the placement is going to continue?

Not in a formal way, under either conventional guide.

Fannie Mae says the lender is not required to verify continuance unless it has reason to believe the income may not continue. Continuance is the word for whether income is expected to keep arriving, and it gates every kind of income in a file. Freddie Mac phrases it as the income needing to be likely to continue for at least the next three years. Your lender does not have to go collect documentation of that, unless it knows something saying the payments have stopped or are about to.

Payments of this kind move for ordinary reasons. A placement ends, or a sibling group arrives, or a child's level of care changes, or the state adjusts its rate. That is why every program reads the income on an average rather than on last month, and why a declining trend gets read on the shorter window.

Where this goes wrong

Four things account for most of it, and all four are fixable before an application.

1. Being told no by somebody reading the wrong rule. The two-year expectation is real and it is not the whole section. A file at fourteen months has a named path under Fannie Mae, so the question to ask is which program the file should be built around.
2. Assuming a nonprofit agency is the same as a state or county one. Every one of the four guides describes a state or county sponsored organization. A private placement arrangement is a different document set and worth raising early rather than at underwriting.
3. Leaving the verification letter until the last week. The agency is not set up to turn it around quickly, and no program treats the letter as optional.
4. Running the thirty percent test against the wrong number. It is measured against total gross qualifying income including the foster care payments, so a household where one spouse recently stopped working can fail the test on a month where it used to pass.

The household income underneath the test matters as much as the payments do. A second job or seasonal work and child support or alimony each carry their own rules, and each one changes the number the thirty percent is measured against.

An illustration

Numbers below are invented to show the mechanism. None of them is a quote, and none describes anyone's file.

A couple has been licensed and fostering for fourteen months. They earn $6,300 a month between two jobs, and the payments have averaged $1,400 a month on a steady trend.

THE THIRTY PERCENT TEST
Employment income              $6,300
Foster care payments           $1,400
                              -------
Total gross qualifying income  $7,700
Thirty percent of that total   $2,310
Foster care payments             $1,400
                              -------
Under the ceiling?                 Yes

The payments are well under thirty percent of the total, so Fannie Mae's twelve-month path is open to that file. The qualifying figure would be built on an average of the most recent twelve months, because the trend is steady.

Now change one fact and leave everything else alone. One spouse stepped back from work and the employment income is $2,600 a month instead of $6,300. Total gross qualifying income becomes $4,000, thirty percent of that is $1,200, and the same $1,400 in payments is now above the ceiling. Under that version the file waits for the two-year mark, or it goes to a program that reads the payments a different way.

Your own arithmetic will land somewhere else, because your payment amount, your other income and the length of your history will all be different. How the test works carries over even though the numbers do not.

What to do now

Your first move is to ask the placing agency for a letter stating your payment amounts, and to pull your bank statements for the last twenty-four months, or for however many months you have. Those two documents answer most of the question by themselves.

From there, get pre-approved with your income, your debts and your credit reviewed properly rather than estimated, and choose the option that works best for you. If an FHA loan is on the table, its two-year requirement is firmer than Fannie Mae's, and that is worth knowing before you set a price range.

Nothing here is a loan approval, a denial, a commitment to lend, tax advice, or legal advice. The rules above come from the published guides of Fannie Mae, Freddie Mac, FHA and VA, and an individual lender may apply requirements of its own. How foster care payments are treated for tax purposes is a question for your tax adviser. No letter from anyone is a loan commitment, and final approval depends on the property, the appraisal and full underwriting.

Common questions

Do foster care payments count as income when applying for a mortgage?

They can. Fannie Mae, Freddie Mac and FHA all name foster care payments as income that may be considered stable and used to qualify, when the history and documentation requirements are met. Fannie Mae expects two years and allows twelve months when the payments are no more than thirty percent of the total gross income used to qualify. Freddie Mac and FHA both want a full two years. VA does not count them as income, and uses them to reduce the assumed family size in its residual income calculation instead.

How long do I have to have been fostering before the payments can be counted?

Two years is the general expectation. Fannie Mae's section names the one shorter path: at least a twelve-month history of providing the services, with the income no more than thirty percent of total gross qualifying income. That thirty percent is measured against the total after the payments are added in. Freddie Mac asks for evidence of receipt across the most recent two-year period, and FHA asks for a two-year history of both providing the services and receiving the payments.

What documents does my lender need for foster care income?

A letter of verification from the state or county organization that pays you, showing the payment amounts, and proof that the payments actually arrived over the most recent twelve or twenty-four months. Bank statements are the usual proof, and cancelled checks or another electronic record are also named in the guide. Please provide all pages of those statements, even the ones that look blank. The letter is worth requesting early, because it comes from a caseworker rather than from a payroll department.

How does my lender calculate the monthly amount from payments that change every month?

By averaging them, with the trend deciding the window. Under Fannie Mae, a stable or increasing trend is averaged across the most recent twelve or twenty-four months, matching whichever history the file relies on, and a decreasing trend is averaged across the most recent twelve months only. Freddie Mac uses a twenty-four month average. FHA uses the lesser of the two-year average and the one-year average, so an upward trend gets measured by the lower figure.

Does foster care income help on a VA loan?

It helps in a different way. VA does not include foster care payments in effective income, so they do not raise the figure behind your ratios. Instead the lender may use them to balance the cost of caring for the children against the residual income requirement, which rises with family size. The handbook's example describes a family receiving a stipend for two foster children and using a family size of two rather than four. The result is a lower bar to clear rather than a higher income figure.