Income Guidelines for Job time Employment and Income Requirements For Mortgage Loan Approval.

EMPLOYMENT PROFILE TIPS
(FANNIE AND FHA)

FHA requires you to establish that the income is in fact stable. I am covering Time on Job, Part Time Income, Seasonal Income and Job Gaps below.

Time on Job

There is not a minimum length of time a borrower must have held a position for the income to be eligible. However, the application must identify the most recent 2 years of employment.

If the borrower’s employment history indicates that they were in school or in the military, then the borrower must provide evidence supporting this such as college transcripts or discharge papers.

The current type of employment has to be supported by the college transcripts or discharge papers showing that he borrower’s training enabled them to gain employment in their field of training.

Part Time Income 

Part-time and second job income can be used to qualify if documentation is obtained to prove that the borrower has worked the part-time job uninterrupted for the past two years, and plans to continue.

For Qualifying purposed, “part-time” income refers to jobs taken to supplement the borrower’s main income from regular employment, such as a second job that is less than 40 hours per week.

Income: Is averaged over the previous 2 years. If there was a pay rate increase and we can document the increase in pay, you can average the new pay rate over 12 months.

Seasonal Income

Seasonal income may be acceptable for qualifying. It is not unusual to have out-of-season income from unemployment income. If the borrower has a 2 year history and continuance is probable, this type of income may be allowed to qualify the borrower.

The key here is history and continuance.

Job Gaps

The borrower must provide a signed explanation for gaps in employment as follows:

Income can be considered effective if the following can be verified:

1. Borrower has been employed in the current job for at least six months at the time of the case number assignment AND

2. A two year work history prior to the absence from employment.

Gaps in Employment A borrower who has no verifiable employment for 6 months or longer is deemed to have a gap in employment.  Fannie:  Fannie does not address gaps in employment in their guidelines.  We must ensure that DU’s income documentation can be met.  This will typically require the borrower’s most recent paystub and a W-2 from the most recent year.  FHA:  borrower must be employed at their current job for 6 months or more at the time of case number assignment and a 2 year work history prior to the gap can be documented. Medical or Temporary Leave Income The borrower has taken a temporary leave of absence from work typically for medical leave such as maternity, illness, surgery, or on the job injury.  This leave is short term in nature and the borrower is still employed with their same employer prior to the leave of absence.  Fannie & FHA: If the borrower will return to work prior to the first mortgage payment date, the borrower’s regular employment income can be used for qualifying.  If the borrower will not return to work prior to the first payment date, the lesser of the temporary leave income (if any) or regular employment income must be used for qualifying. If temporary leave income is less than regular employment income, the borrower may use available liquid reserves to calculate supplemental income per Fannie guidelines. The employer must also verify the borrower intends to return to work and has the right to return to work. Frequent Job Changes Frequent job changes may indicate instability in a borrower’s income. Fannie: Individuals who change jobs frequently but who are nevertheless able to earn consistent and predictable income are considered to have a reliable flow of income for qualifying purposes. FHA: If the borrower has changed employers more than three times in the previous 12 month period or has changed lines of work requires additional underwriter analysis to determine job stability.  This may include but is not limited to documentation of training and education for new employment or documentation evidencing continual increases in income or benefits. Seasonal Employment Seasonal Employment refers to employment that is not year round typically due to weather conditions.  Seasonal Employment can be full time or part time. Fannie & FHA:  Borrower must have worked the same job (or same line of seasonal work) for the past 2 years and the borrower’s employer must state there is a reasonable expectation that the borrower will be rehired for the next season.  Tax returns will be required if unemployment compensation will be used to qualify the borrower.  *Income calculation will follow calculation guidelines.  These guidelines are for employment history and profile only.

W2 Income Tips

Income plays a significant role when applying for a mortgage loan. Underwriters must follow both DU and agency guidelines when it comes to documenting and calculating qualifying income for a loan transaction. Income guidelines may vary slightly depending on the loan program and the borrower’s employment profile. Below are some general tips for W2 income.    Documentation that may be required Paystub with year to date gross earnings At least 1 year’s W2 Verbal or full VOE Base Pay Salaried and fixed hourly income is calculated by averaging the gross year to date income  Variable hourly income is calculated by averaging 12 month history Commission and tip income is calculated by averaging over 24 months No transcripts are required for salaried, hourly, or less than 25% commission W2 income borrowers Unreimbursed expenses do not have to be deducted from the gross pay for salaried, hourly, or less than 25% commission W2 borrowers Overtime, and Bonus Income Overtime and Bonus can be used as effective income as long as it’s been received for 2 years and is reasonably likely to continue Periods of less than 2 years may be considered as long as it’s been consistently earned over a period of at least 12 months and there are positive factors to offset the shorter history of receipt per underwriter discretion Overtime and Bonus income must be documented by a full VOE Declining overtime and bonus income cannot be used for qualifying income Part Time Income FHA requires a 2 year history of working multiple jobs Fannie will allow less than 2 years as long as it’s been consistently earned over a period of at least 12 months and there are positive factors to offset the shorter history of receipt per underwriter discretion

Self Employed Income

• A borrower is considered self employed if they have 25% or more ownership in a business. • Contract or 1099 employees are self employed borrowers • There are 4 types of self employed business structures o  Sole Proprietorships o  Corporations o  Limited Liability Company (LLC) o  Partnerships Tax Returns are always required for a self employed borrower.  Depending on the business structure, the borrower may have business returns in addition to their personal tax returns. 1099, Sole Proprietorships, and LLC self employed borrowers typically file Schedule C on their personal tax returns Corporations and Partnerships will file Business Tax Returns in addition to their personal returns.  The business returns will include K1’s listing the borrower’s ordinary business income and percentage of ownership. Corporation and Partnerships may also have W2 income in addition to their K1’s. All self employed income is calculated per agency guidelines Self employed income requires a 2 year history.  Declining self employed income typically cannot be used unless allowed by specific agency of loan program

Joel Lobb
Senior Loan Officer
(NMLS#57916)

American Mortgage Solutions, Inc.
10602 Timberwood Circle, Suite 3
Louisville, KY 40223

text or call my phone: (502) 905-3708
email me at kentuckyloan@gmail.com

The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people. NMLS ID# 57916, (www.nmlsconsumeraccess.org). Mortgage loans only offered in Kentucky.
All loans and lines are subject to credit approval, verification, and collateral evaluation and are originated by lender. Products and interest rates are subject to change without notice.

Joel E Lobb
American Mortgage
5029053708
email us here

Kentucky FHA, VA, USDA & Rural Housing, KHC and Fannie Mae mortgage loans.

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How to figure an income for different borrowers job for a Mortgage Loan Approval for FHA, VA, KHC, USDA and Fannie Mae.

What income is okay for a mortgage loan approval?

I have put together some information to help assist you in answering some questions about qualifying for a mortgage loan when it comes to your job history and income. 

Wage Earner:

-2 year history of employment unless college/training
recently completed and borrower is employed in field
-Most recent paystub showing 30 days of earnings
-2 yrs W2s
-If working for family owned business tax returns required
-Borrowers who own 25% or more of company are
considered self-employed
-In cases of skilled employment may use letter of hire if
borrower hasn’t started job. Must be guaranteed, nonrevocable,
and start work within 60 days of closing.
Borrow must have sufficient funds for living expenses until
then.

Self-Employed

-Two year history of self-employment
-Two years tax returns + YTD P&L
Commission Income
-Two year history required w/ few exceptions
-If more than 25% of income is from commissions 2 yrs
tax returns required

Part-time Income

-2 yr history req unless stability can be documented

Child Support/Alimony

-12 month history
-Supporting documents
-3 yr continuance (verify ages of children)
-May be grossed up by tax rate used on last yrs tax
return. If not required to file return use 25%.

Bonus Income

-Full two-year-plus average

Car Allowance

-Acceptable but borrower must provide tax returns. Any
car expenses claimed on form 2106 will be deducted from
income.

Overtime

-Two-year-plus average unless employer verifies hours
are required as part of regular work week.

Rental Income from other properties owned

-2 year avg history as per tax returns – use net rents and
add depreciation
-If less than two yr history provide lease and calculate net
rent using HOC vacancy factors

Rental Income from current primary residence
being vacated

-Allowed only in cases of relocation by employer outside
of reasonable commuting distance OR
-Proof of 25% equity in home.
-Requires 1 yr signed lease and underwriter may want
proof of security deposit
-Rental Income to be reduced by HOC vacancy factor

Seasonal/Construction/Trade Income

-2 yr avg history preferred

Boarder Income

-Allowed if boarder is related by blood, marriage or law
and income has been claimed on last 2 years tax returns

Social Security

-Must have likelihood of 3 year continuance
-Award letter and proof of receipt – usually bank stmts

Truck Drivers

-Salary/hourly process as W2 wage earners
-Pd by mile or trip – process as commission income
-Paid by 1099 – process as self-employed

Joel Lobb
Senior  Loan Officer

(NMLS#57916)

 

American Mortgage Solutions, Inc.

10602 Timberwood Circle, Suite 3

Louisville, KY 40223

 

text or call my phone: (502) 905-3708
email me at kentuckyloan@gmail.com

The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people. NMLS ID# 57916, (www.nmlsconsumeraccess.org). Mortgage loans only offered in Kentucky.

All loans and lines are subject to credit approval, verification, and collateral evaluation and are originated by lender. Products and interest rates are subject to change without notice. Manufactured and mobile homes are not eligible as collateral.