✓

Verification of Income From Alimony or Child Support

Document that alimony or child support will continue to be paid for at least three years after the date of the mortgage application, as verified by one of the following:

• A copy of a divorce decree or separation agreement (if the divorce is not final) that indicates payment of alimony or child support and states the amount of the award and the period of time over which it will be received.
  
  Note: If a borrower who is separated does not have a separation agreement that specifies alimony or child support payments, the lender should not consider any proposed or voluntary payments as income.
  
• Any other type of written legal agreement or court decree describing the payment terms for the alimony or child support.
  
• Documentation that verifies any applicable state law that mandates alimony, child support, or separate maintenance payments, which must specify the conditions under which the payments must be made.

Check for limitations on the continuance of the payments, such as the age of the children for whom the support is being paid or the duration over which alimony is required to be paid.

Document no less than six months of the borrower's most recent regular receipt of the full payment.

Review the payment history to determine its suitability as stable qualifying income. To be considered stable income, full, regular, and timely payments must have been received for six months or longer. Income received for less than six months is considered unstable and may not be used to qualify the borrower for the mortgage. In addition, if full or partial payments are made on an inconsistent or sporadic basis, the income is not acceptable for the purpose of qualifying the borrower.

✓

Verification of Income from Boarders

Obtain documentation of the boarder's history of shared residency (such as a copy of a driver's license, bills, bank statements, or W-2 forms) that shows the boarder's address as being the same as the borrower's address.

Obtain documentation of the boarder's rental payments for the most recent 12 months.

✓

Verification of Capital Gains Income

Document a two-year history of capital gains income by obtaining copies of the borrower's signed federal income tax returns for the most recent two years, including IRS Form 1040, Schedule D.

Develop an average income from the last two years (according to the Variable Income section of B3-3.1-01, General Income Information (08/07/2018)), and use the averaged amount as part of the borrower's qualifying income as long as the borrower provides current evidence that he or she owns additional property or assets that can be sold if extra income is needed to make future mortgage loan payments.
Note: Capital losses identified on IRS Form 1040, Schedule D, do not have to be considered when calculating income or liabilities, even if the losses are recurring.
Due to the nature of this income, current receipt of the income is not required to comply with the Allowable Age of Credit Documents policy. However, documentation of the asset ownership must be in compliance with the Allowable Age of Credit Documents policy (see B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns (02/27/2018), for additional information).

✓

Verification of Long-Term Disability Income

Obtain a copy of the borrower's disability policy or benefits statement from the benefits payer (insurance company, employer, or other qualified disinterested party) to determine

• the borrower's current eligibility for the disability benefits,
  
• the amount and frequency of the disability payments, and
  
• if there is a contractually established termination or modification date.

Generally, long-term disability will not have a defined expiration date and must be expected to continue. The requirement for re-evaluation of benefits is not considered a defined expiration date.
If a borrower is currently receiving short-term disability payments that will decrease to a lesser amount within the next three years because they are being converted to long-term benefits, the amount of the long- term benefits must be used as income to qualify the borrower. For additional information on short-term disability, see Temporary Leave Income below.

✓

Option 1 – Loan Delivered After Borrower Starts Employment

The lender must obtain an executed copy of the borrower's offer or contract for future employment and anticipated income.

Prior to delivering the loan, the lender must obtain a paystub from the borrower that includes sufficient information to support the income used to qualify the borrower based on the offer or contract. The paystub must be retained in the mortgage loan file.

✓

Option 2 – Loan Delivered Prior To Borrower Starting Employment

This option is limited to loans that meet the following criteria:

• purchase transaction,
  
• principal residence,
  
• one-unit property,
  
• the borrower is not employed by a family member or by an interested party to the transaction, and
  
• the borrower is qualified using only fixed based income.

The lender must obtain and review the borrower's offer or contract for future employment. The employment offer or contract must

• clearly identify the employer and the borrower, be signed by the employer, and be accepted and signed by the borrower;
  
• clearly identify the terms of employment, including position, type and rate of pay, and start date; and
  
• be non-contingent. Note: If conditions of employment exist, the lender must confirm prior to closing that all conditions of employment are satisfied either by verbal verification or written documentation. This con- firmation must be noted in the mortgage loan file.
  Also note that for a union member who works in an occupation that results in a series of short-term job assignments (such as a skilled construction worker, longshoreman, or stagehand), the union may provide the executed employment offer or contract for future employment.

The employment start date as shown on the employment offer or contract must be within 90 days of the note date.

The lender must document, in addition to the amount of reserves required by DU or for the transaction, one of the following:

• Financial reserves sufficient to cover principal, interest, taxes, insurance, and association dues (PITIA) for the subject property for six months; or
  
• Financial reserves or current income sufficient to cover the monthly liabilities included in the debt-to-in- come ratio, including the PITIA for the subject property, for the number of months between the note date and the employment start date, plus one. Current income refers to income that is currently being received by the borrower (or coborrower), may or may not be used for qualifying, and may or may not continue after the borrower starts employment under the offer or contract. Current income may be used in lieu of or in addition to financial reserves. For this purpose, the lender may use the amount of income the bor- rower is expected to receive between the note date and the employment start date. If the current income is not being used for qualifying purposes, it can be documented by the lender using income documenta- tion, such as a paystub, and no verification of employment is required. For calculation purposes, consid- er any portion of a month as a full month.

The lender must deliver the loan with Special Feature Code 707.

✓

Asset Requirements

Assets used for the calculation of the monthly income stream must be owned individually by the borrower, or the co-owner of the assets must be a co-borrower of the mortgage loan.
The documentation must be in compliance with the Allowable Age of Credit Documents policy (see B1-1- 03, Allowable Age of Credit Documents and Federal Income Tax Returns (02/27/2018), for additional information).

Assets must be liquid and available to the borrower and must be sourced as one of the following:

• A non-self-employed severance package or non-self-employed lump sum retirement package (a lump sum distribution) — these funds must be documented with a distribution letter from the employer (Form 1099–R) and deposited to a verified asset account.
  
• For 401(k) or IRA, SEP, Keogh retirement accounts – the borrower must have unrestricted access to the funds in the accounts and can only use the accounts if distribution is not already set up or the distribution amount is not enough to qualify. The account and its asset composition must be documented with the most recent monthly, quarterly, or annual statement.

If a penalty would apply to a distribution of funds from the account made at the time of calculation, then the amount of such penalty applicable to a complete distribution from the account (after costs for the transaction) must be subtracted to determine the income stream from these assets.

If the employment–related assets are in the form of stocks, bonds, and mutual funds, 70% of the value (remaining after costs for the transaction and consideration of any penalty) must be used to determine the income stream to account for the volatile nature of these assets.

A borrower shall only be considered to have unrestricted access to a 401(k) or IRA, SEP, Keogh retirement account if the borrower has, as of the time of calculation, the unqualified and unlimited right to request a distribution of all funds in the account (regardless of any possible tax withholding or applicable penalty applied to such distribution).

"Net documented assets" are equal to the sum of eligible assets minus:

1. the amount of the penalty that would apply if the account was completely distributed at the time of calculation;
   
2. the amount of funds used for down payment, closing costs, and required reserves;
   
3. 30% of the remaining value of any stocks, bonds, or mutual funds assets (after the calculation in (b)).

Ineligible assets are non-employment-related assets (for example, stock options, non-vested restricted stock, lawsuits, lottery winnings, sale of real estate, inheritance, and divorce proceeds). Checking and savings accounts are generally not eligible as employment-related assets, unless the source of the balance in a checking or savings account was from an eligible employment-related asset (for example, a severance package or lump sum retirement distribution).

✓

Asset Requirements

Example: Calculation of Net Documented Assets

IRA (made up of stocks and mutual funds)

$ 500,000

Minus 10% of $500,000 ($500,000 x .10)
(Assumes a 10% penalty applies for early distribution, which must be levied against any cash being withdrawn for closing the transaction as well as the remaining funds used to calculate the income stream.)

$50,000

Total eligible documented assets

(=) $ 450,000

Minus funds required for closing
(down payment, closing costs, reserves)

$100,000

(a) Subtotal

(=) $ 350,000

Minus 30% of $350,000 ($350,000 x .30)

$105,000

(b) Net Documented Assets

(=) $245,000

Monthly income calculation
($245,000/360 (or applicable term of loan in months)) See Income Calculation/Payout Stream in table below.

$680.56/month

Loan Parameter

Requirement

Maximum LTV, CLTV, and HCLTV Ratio

70%
80% if the owner of the asset(s) being used to qualify is at least 62 years old at the time of closing. If the asset(s) is jointly owned, all owners must be borrowers on the loan and the borrower whose employment-related asset is being used as income must be at least 62 years old at the time of closing.

Minimum Credit Score

DU: 620
Manual: Higher of 620 or minimum credit score per the Eligibility Matrix

Loan Purpose

Purchase and limited cash-out refinance only

Occupancy

Principal residence and second home only

Number of Units

As permitted by occupancy type

Income Calculation/Payout Stream

Divide "Net Documented Assets" by the amortization term of the mortgage loan (in months).

✓

Verification of Foreign Income

Copies of his or her signed federal income tax returns for the most recent two years that include foreign income.

The lender must satisfy the standard documentation requirements based on the source and type of income as outlined in Chapter B3–3, Income Assessment.
Note: All income must be translated to U.S. dollars. If the borrower is not a U.S. citizen, refer to B2-2- 02, Non–U.S. Citizen Borrower Eligibility Requirements (07/28/2015), for additional information.

✓

Verification of Foster-Care Income

Verify the foster-care income with letters of verification from the organizations providing the income.

Document that the borrower has a two-year history of providing foster-care services. If the borrower has not been receiving this type of income for two full years, the income may still be counted as stable income if

• the borrower has at least a 12-month history of providing foster-care services, and
  
• the income does not represent more than 30% of the total gross income that is used to qualify for the mortgage loan.

✓

Verification of Income From Interest and Dividends

Verify the borrower's ownership of the assets on which the interest or dividend income was earned. Documentation of asset ownership must be in compliance with the Allowable Age of Credit Documents policy (see B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns (02/27/2018), for additional information).

Document a two-year history of the income, as verified by

• copies of the borrower's signed federal income tax returns, or
  
• copies of account statements.

Develop an average of the income received for the most recent two years. Refer to the Variable Income section of B3-3.1-01, General Income Information (08/07/2018), for additional information.

Subtract any assets used for down payment or closing costs from the borrower's total assets before calculating expected future interest or dividend income.

✓

Verification of Income From Mortgage Differential Payments

Obtain written verification from the borrower's employer confirming the subsidy and stating the amount and duration of the payments.

Verify that the income can be expected to continue for a minimum of three years from the date of the mortgage application.
If this income is used on a purchase transaction, current receipt is not required to be documented except as verified in the employer letter. For refinance transactions where the income is continuing with the new loan, the recent receipt must be in compliance with the Allowable Age of Credit Documents policy (see B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns (02/27/2018), for additional information).

✓

Verification of Income From Notes Receivable

Verify that the income can be expected to continue for a minimum of three years from the date of the mortgage application.

Obtain a copy of the note to establish the amount and length of payment.

Document regular receipt of income for the most recent 12 months.
Payments on a note executed within the past 12 months, regardless of the duration, may not be used as stable income.

✓

Verification of Public Assistance Income

Document the borrower's receipt of public assistance income with letters or exhibits from the paying agency that state the amount, frequency, and duration of the benefit payments.

Verify that the income can be expected to continue for a minimum of three years from the date of the mortgage application.

✓

Verification of Section 8 Payment Vouchers

Determine from the public agency that issues the vouchers the monthly payment amount and whether the income is nontaxable.
If the income is nontaxable, the lender can develop an adjusted gross income for the borrower. See B3-3.1- 01, General Income Information (08/07/2018), for additional information.

✓

Verification of Retirement and Pension Income

Document regular and continued receipt of the income, as verified by

• letters from the organizations providing the income,
  
• copies of retirement award letters,
  
• copies of signed federal income tax returns,
  
• IRS W-2 or 1099 forms, or
  
• proof of current receipt.

If retirement income is paid in the form of a distribution from a 401(k), IRA, or Keogh retirement account, determine whether the income is expected to continue for at least three years after the date of the mortgage application. In addition

• the borrower must have unrestricted access without penalty to the accounts; and
  
• if the assets are in the form of stocks, bonds, or mutual funds, 70% of the value (remaining after any appli- cable costs for the subject transaction) must be used to determine the number of distributions remaining to account for the volatile nature of these assets.
  Documentation of asset ownership must be in compliance with the Allowable Age of Credit Documents policy (see B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns (02/27/2018), for additional information).

✓

Verification of Income From Royalty Payments

Obtain copies of the

• royalty contract, agreement, or statement confirming amount, frequency, and duration of the income; and
  
• borrower's most recent signed federal income tax return, including the related IRS Form 1040, Schedule E.

Confirm that the borrower has received royalty payments for at least 12 months and that the payments will continue for a minimum of three years after the date of the mortgage application.

✓

Verification of Schedule K-1 Income

If the Schedule K-1 reflects a documented, stable history of receiving cash distributions of income from the business consistent with the level of business income being used to qualify, then no further documentation of access to the income or adequate business liquidity is required. The Schedule K-1 income may then be included in the borrower's cash flow.

If the Schedule K-1 does not reflect a documented, stable history of receiving cash distributions of income from the business consistent with the level of business income being used to qualify, then the lender must confirm the business has adequate liquidity to support the withdrawal of earnings. The lender may use discretion in the method used to confirm the business has adequate liquidity.

If the borrower has a two-year history of receiving "guaranteed payments to the partner" from a partnership or an LLC, these payments can be added to the borrower's cash flow.
Note: An exception to the two-year requirement of receiving "guaranteed payments to the partner" is if a borrower has recently acquired nominal ownership in a professional services partnership (for example, a medical practice or a law firm) after having an established employment history with the partnership. In this situation, the lender may rely on the borrower's guaranteed compensation. This must be evidenced by the borrower's partnership agreement and further supported by evidence of current year-to-date income.

✓

Verification of Social Security Income

Social Security income for retirement or long-term disability that the borrower is drawing from his or her own account/work record will not have a defined expiration date and must be expected to continue.
However, if Social Security benefits are being paid as a benefit for a family member of the benefit owner, that income may be used in qualifying if the lender obtains documentation that confirms the remaining term is at least three years from the date of the mortgage application.

Document regular receipt of payments, as verified by the following, depending on the type of benefit and the relationship of the beneficiary (self or other) as shown in the table below.

Documentation Requirements

Type of Social Security benefit

Borrower is drawing Social Secu- rity benefits from own account/ work record1

Borrower is drawing Social Security benefits from another person's account/ work record2

Retirement

• Social Security Administrator's (SSA) Award letter, or
  
• Proof of current receipt

• SSA Award letter,
  
• Proof of current receipt, AND
  
• Three-year continuance (e.g., verifica- tion of beneficiary's age)

Disability

Survivor Benefits

NA

Supplement Security Income (SSI)

• SSA Award letter, and
  
• Proof of current receipt

NA

✓

Temporary Leave – Employment Requirements

The borrower's employment and income history must meet standard eligibility requirements as described in Section B3–3.1, Employment and Other Sources of Income.

The borrower must provide written confirmation of his or her intent to return to work.

The lender must document the borrower's agreed-upon date of return by obtaining, either from the borrower or directly from the employer (or a designee of the employer when the employer is using the services of a third party to administer employee leave), documentation evidencing such date that has been produced by the employer or by a designee of the employer.


Examples of the documentation may include, but are not limited to, previous correspondence from the employer or designee that specifies the duration of leave or expected return date or a computer printout from an employer or designee's system of record. (This documentation does not have to comply with the Allowable Age of Credit Documents policy.)

The lender must receive no evidence or information from the borrower's employer indicating that the borrower does not have the right to return to work after the leave period.

The lender must obtain a verbal verification of employment in accordance with B3-3.1-07, Verbal Verification of Employment (10/02/2018). If the employer confirms the borrower is currently on temporary leave, the lender must consider the borrower employed.

The lender must verify the borrower's income in accordance with Section B3–3.1, Employment and Other Sources of Income. The lender must obtain

• the amount and duration of the borrower's "temporary leave income," which may require multiple docu- ments or sources depending on the type and duration of the leave period; and
  
• the amount of the "regular employment income" the borrower received prior to the temporary leave. Reg- ular employment income includes, but is not limited to, the income the borrower receives from employment on a regular basis that is eligible for qualifying purposes (for example, base pay, commissions, and bonus).
  Note: Income verification may be provided by the borrower, by the borrower's employer, or by a third- party employment verification vendor.

✓

Verification of Tip Income

Obtain the following documents:

• a completed Request for Verification of Employment (Form 1005 or[ Form 1005(S)

https://www.fanniemae.com/content/guide_form/1005s.pdf]), or

• the borrower's recent paystub, and
  
• IRS W-2 forms covering the most recent two-year period or the most recent two years tax returns with IRS Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to verify tips not reported by the employer.
  See B3-3.1-02, Standards for Employment Documentation (10/24/2016), for additional information.

Tip income may be used to qualify the borrower if the lender verifies that the borrower has received it for the last two years.

The lender must determine the amount of tip income that may be considered in qualifying the borrower. Refer to the Variable Income section of B3-3.1-01, General Income Information (08/07/ 2018), for additional information.

✓

Verification of Trust Income

Confirm the trust income by obtaining a copy of the trust agreement or the trustee's statement confirming the amount, frequency, and duration of payments.

Verify that the trust income will continue for at least three years from the date of the mortgage application.
Unless this income is received monthly, documentation of current receipt of the income is not required to comply with the Allowable Age of Credit Documents policy.

✓

Verification of Income From Unemployment Benefits

Document that the borrower has received the payments consistently for at least two years by obtaining copies of signed federal income tax returns.

Unemployment compensation cannot be used to qualify the borrower unless it is clearly associated with seasonal employment that is reported on the borrower's signed federal income tax returns. Verify that the seasonal income is likely to continue. See B3-3.1-05, Secondary Employment Income (Second Job and Multiple Jobs) and Seasonal Income (05/27/2014), for additional information about verifying seasonal income.

✓

Verification of VA Benefits Income

Document the borrower's receipt of VA benefits with a letter or distribution form from the VA.

Verify that the income can be expected to continue for a minimum of three years from the date of the mortgage application. (Verification is not required for VA retirement or long-term disability benefits.)

Announcements and Release Notes

Issue Date

Announcement SEL-2018-08

October 02, 2018

Announcement SEL-2018-06

August 07, 2018

Announcement SEL-2017-06

July 25, 2017

Announcement SEL-2016–08

October 24, 2016

Announcement SEL-2016–05

June 28, 2016

Announcements and Release Notes

Issue Date

Announcement SEL-2016–04

May 31, 2016

Announcement SEL-2015–10

September 29, 2015

Announcement SEL-2015–09

August 25, 2015

Announcement SEL-2015–07

June 30, 2015

Announcement SEL-2015–01

January 27, 2015

Announcement SEL-2014–12

September 30, 2014

Announcement SEL-2014–06

May 27, 2014

Announcement SEL-2013–07

September 24, 2013

Announcement SEL-2013–04

May 28, 2013

Announcement SEL-2012-13

November 13, 2012

Announcement SEL-2012–07

August 21, 2012

DU Version 9.0

July 24, 2012

Announcement SEL-2012–04

May 15, 2012

Announcement SEL-2011–13

December 20, 2011

Announcement SEL-2010–16

December 1, 2010

Announcement SEL-2010–13

September 20, 2010

DU Version 8.2

September 20, 2010

Announcement 09–19

June 8, 2009