Refer to Bulletins 2016-19 and 2016-23, which announced revisions to certain income qualification requirements. Sellers may use the July 6, 2017 effective version of this section for Mortgages with Settlement Dates on and after March 6, 2017. Sellers must use the July 6, 2017 effective version of this section for Mortgages with Settlement Dates on and after July 6, 2017.
A Borrower may receive additional income from employment such as commission, bonuses, overtime pay and automobile allowances. If the Seller includes additional earnings to qualify the Borrower, the Seller must determine that the amount of additional income used to qualify the Borrower is stable and complies with the requirements below for each income type. This section contains topic specific stable monthly income and documentation requirements for the following income types:
- Commission
- Bonus
- Overtime
- Tips
- Automobile Allowance
- Mortgage differential
- Military income, entitlements and reserve duty
- Unemployment compensation associated with seasonal employment
| Income Type | Stable monthly income requirements | Documentation requirements | |
| Streamlined Accept Documentation Level | Standard Documentation Level | ||
| Commission | The Borrower must have a two-year consecutive history of receiving commission income and the commission income must be likely to continue for at least the next three years in order to consider the income for qualifying. Borrowers who receive commission income must provide federal tax returns for the previous two-year period. Employee paid business expenses reflected on the Borrower's tax returns must be deducted from the Borrower's gross commission income when calculating income. | All of the following:
Or, all of the following:
| |
| Bonus | The Borrower must have a two-year consecutive history of receiving bonus income and the bonus income must be likely to continue for at least the next three years in order to consider the income for qualifying. | All of the following:
Or all of the following:
| |
| Overtime | The Borrower must have a two-year consecutive history of receiving overtime income and the overtime income must be likely to continue for at least the next three years in order to consider the income for qualifying. | All of the following:
Or all of the following:
| |
| Tips | The Borrower must have a two-year consecutive history of receiving income from tips and the tip income must be likely to continue for at least the next three years in order to consider the income for qualifying. | All of the following:
Or all of the following:
| |
| Automobile Allowance | The Borrower must have a two-year consecutive history of receiving an automobile allowance and the automobile allowance must be likely to continue for at least the next three years in order to consider the income for qualifying. The Seller may add the full amount of the allowance to the Borrower's qualifying income, and when calculating the Borrower's debt payment-to-income ratio, the Seller must include the full amount of the monthly automobile financing expense in the calculation of the Borrower's monthly debt payment (refer to Section 5401.2). The Seller may not subtract the automobile allowance from the monthly automobile financing expense. | All of the following:
Or all of the following:
| |
| Mortgage differential | Payments from the Borrower's employer for all or part of the interest differential between the Borrower's present and proposed mortgage payment may be considered qualifying income if the documentation shows that the payments are pursuant to an established, ongoing and documented employer program and will continue for at least the next three years. A history of receipt is not required for the income to be considered stable. The employer must not be an interested party to the transaction. | Agreement from the employer stating the terms including, but not limited to, the scheduled amount and duration of the payments. | |
| Military income, entitlements and reserve duty | A Borrower who is a member of the United States Armed Forces may receive pay entitlements such as flight or hazard duty, rations, clothing allowance or quarters allowance in addition to base pay. The Seller may consider entitlements qualifying income if documented and likely to continue for at least the next three years. If the Borrower is a member of a reserve component of the United States Armed Forces, the Seller may consider the reserve duty income for qualifying. A history of receipt is not required for the income to be considered stable. | All of the following:
Or all of the following:
In lieu of a verbal VOE, a Leave and Earnings Statement dated no more than 30 days prior to the Note Date may be provided. | All of the following:
Or all of the following:
In lieu of a verbal VOE, a Leave and Earnings Statement no more than 30 days prior to the Note Date may be provided. |
| Seasonal employment and unemployment compensation | The Borrower must have a two-year consecutive history of receiving income from seasonal employment and the seasonal employment income must be likely to continue for at least the next three years in order to consider the income for qualifying. Unemployment compensation associated with seasonal employment may be considered qualifying income if the Borrower has a two-year history of receipt and the unemployment compensation is likely to continue for at least the next three years. The Seller must not use seasonal employment income or unemployment compensation to qualify the Borrower unless the income is reported on the Borrower's federal individual income tax returns for the most recent two-year period. | All of the following:
Or all of the following:
| |
1 The verbal VOE must be obtained no more than 10 Business Days prior to the Note Date or after the Note Date but prior to the Delivery Date. Additionally, in lieu of the verbal VOE obtained as required in the chart above, the Seller may obtain a written VOE or third-party employment verification when a verbal VOE is unavailable.
| Related Guide Bulletins | Issue Date |
|---|---|
| Bulletin 2016-23 | December 15, 2016 |
Additional Resource: http://www.freddiemac.com/singlefamily/guide/bulletins/pdf/032217Guide.pdf#page=834