5303.3: Additional employed income (09/14/17)

This section contains general and topic-specific stable monthly income history, continuance, calculation and documentation requirements for the following income types:

Commission income less than 25%
Commission income greater than or equal to 25%
Bonus income
Overtime income
Tip income – Reported by the employer
Tip income – Cash and charge tips reported on Internal Revenue Service (IRS) Form 4137
Automobile allowance
Mortgage differential
Military entitlements
Military Reserves and National Guard
Unemployment compensation associated with seasonal employment

(a) General overview

A Borrower may receive additional income from employment such as commission, bonus and overtime pay. Generally, additional employed income is received in connection with the primary or secondary employment; however, there are instances where the income is received through separate sources, such as the military Reserve or National Guard. If the Seller includes additional employed income to qualify the Borrower, the Seller must determine that the amount of income used to qualify the Borrower is stable and complies with the requirements below for each income type. All income must be either expected to continue or have documented continuance for at least three years as defined in the topic specific requirements within this section.The following requirements and guidance are to be used in conjunction with the requirements and guidance in Section 5301.1.

(b) Income history and stability – requirements and guidance

Many additional employed income types are fluctuating income. The stability of fluctuating income is determined based primarily upon historical earnings so it is imperative that a sufficient income history has been established. For this reason, most income types that fluctuate have a history requirement of two years. In certain instances, a shorter history may still be considered stable if the Seller provides a written analysis and sufficient supporting documentation justifying the determination of stability. When making this determination, the Seller must take into consideration factors such as income and/or employment characteristics and the overall layering of risk factors, including the Borrower's demonstrated ability to repay obligations. In no event may the history be less than 12 months.Refer to Section 5303.4 for information with respect to employed income calculation requirements and guidance.

(c) Earnings types for additional employed income

(i) Fixed earnings

For the purposes of determining stable monthly income, fixed additional employed income earnings are considered to be earnings that are based on a pre-determined and agreed upon fixed amount of pay that is fully documented, such as an automobile allowance, mortgage differential or military entitlement(s).

(ii) Fluctuating earnings

For the purposes of determining stable monthly income, fluctuating additional employed income earnings are considered to be earnings that fluctuate on a regular basis, often based on factors such as hours worked, job type and performance. Fluctuating earnings may include, but are not limited to, income types such as commissions, overtime, bonus, tips, Reserve and National Guard, and unemployment compensation associated with seasonal employment.

Refer to Section 5303.4 for information with respect to employed income calculation requirements and guidance.

(d) Stable monthly income and documentation requirements for additional employed income

The chart below includes the stable monthly income and documentation requirements for additional employed income:

Income type	Stable monthly income requirements	Documentation requirements
Income type	Stable monthly income requirements	Streamlined Accept and Standard Documentation Levels
Commission income less than 25% of the income from the commissioned employment	History of receipt: Two-years, consecutive Continuance: Must be likely to continue for at least the next three years Calculation: Refer to Section 5303.4(b) for calculation guidance and requirements	All of the following: YTD paystub(s) documenting all YTD earnings, W-2 forms for the most recent two calendar years and a 10-day PCV (refer to Section 5302.2(d)) Or, all of the following: Written verification of employment (VOE) documenting all YTD earnings and the earnings for the most recent two calendar years and a 10-day PCV
Commission income greater than or equal to 25% of the income from the commissioned employment	History of receipt: Two years, consecutive Continuance: Must be likely to continue for at least the next three years Calculation: Unreimbursed employee expenses reflected on Schedule A and IRS Form 2106 (if applicable) of the Borrower's federal individual income tax returns must be deducted from the Borrower's gross commission income when calculating income. Refer to Section 5303.4(b) for calculation guidance and requirements.	All of the following: YTD paystub(s) documenting all YTD earnings, W-2 forms for the most recent two calendar years, and a 10-day PCV Complete federal individual income tax returns covering the most recent two-year period Or, all of the following: Written VOE documenting all YTD earnings and the earnings for the most recent two calendar years, and a 10-day PCV Complete federal individual income tax returns covering the most recent two-year period
Bonus income	History of receipt: Two-years, consecutive Continuance: Must be likely to continue for at least the next three years Calculation: Refer to Section 5303.4(b) for calculation guidance and requirements	All of the following: YTD paystub(s) documenting all YTD earnings, W-2 forms for the most recent two calendar years and a 10-day PCV Or all of the following: Written VOE documenting all YTD earnings and the earnings for the most recent two calendar years and a 10-day PCV
Overtime income	History of receipt: Two-years, consecutive Continuance: Must be likely to continue for at least the next three years Calculation: Refer to Section 5303.4(b) for calculation guidance and requirements	All of the following: YTD paystub(s) documenting all YTD earnings, W-2 forms for the most recent two calendar years and a 10-day PCV Or all of the following: Written VOE documenting all YTD earnings and the earnings for the most recent two calendar years, and a 10-day PCV
RS and RSU subject to performance-based vesting provisions	History of receipt: Two years, consecutive To be considered for history of receipt, RS and RSU used for qualifying must have vested and been distributed to the Borrower from their current employer, without restriction Continuance: Must be likely to continue for at least the next three years Calculation: Refer to Section 5303.4(b) for calculation guidance and requirements	All of the following: YTD paystub(s) documenting all YTD earnings, including payout(s) of RS or RSU, W-2 forms for the most recent two calendar years and a 10-day PCV. Income verification obtained through a third-party verification service provider as described in Section 5302.3 is not permitted. Or all of the following: Written VOE documenting all YTD earnings (including payout(s) of RS or RSU) as well as earnings for the most recent two calendar years, and a 10-day PCV. Income verification obtained through a third-party verification service provider as described in Section 5302.3is not permitted. Additional documentation requirements applicable to all documentation levels: The Mortgage file must contain: Evidence the stock is publicly traded RS and/or RSU agreement Most recent vesting schedule(s) detailing past and future vesting Evidence of receipt of previous year(s) payout(s) of RS/RSU (e.g., year-end paystub, employer-provided statement paired with a brokerage or bank statement showing transfer of shares or funds) that must, at a minimum, include: Date(s) of the payout(s) The number of vested shares or its cash equivalent distributed to the Borrower (pre-tax)
RS & RSU subject to time-based vesting provisions	History of receipt: One year To be considered for history of receipt, RS and RSU used for qualifying must have vested and been distributed to the Borrower from their current employer, without restriction Continuance: Must continue for at least the next 3 years Calculation: Refer to Section 5303.4(b) for calculation guidance and requirements	All of the following: YTD paystub(s) documenting all YTD earnings, including payout(s) of RS or RSU, W-2 form for the most recent calendar year, and a 10-day PCV. Income verification obtained through a third-party verification service provider as described in Section 5302.3 is not permitted. Or all of the following: Written VOE documenting all YTD earnings (including payout(s) of RS or RSU) as well as earnings for the most recent calendar year, and a 10-day PCV. Income verification obtained through a third-party verification service provider as described in Section 5302.3 is not permitted. Additional documentation requirements applicable to all documentation levels: The Mortgage file must contain: Evidence the stock is publicly traded RS and/or RSU agreement Most recent vesting schedule(s) detailing past and future vesting Evidence of receipt of previous year's payout(s) of RS/RSU (e.g., year-end paystub, employer-provided statement paired with a brokerage or bank statement showing transfer of shares or funds) that must, at a minimum, include: Date(s) of the payout(s) The number of vested shares or its cash equivalent distributed to the Borrower (pre-tax)
Tip income reported by the employer	History of receipt: Two-years, consecutive Continuance: Must be likely to continue for at least the next three years Calculation: Refer to Section 5303.4(b) for calculation guidance and requirements	All of the following: YTD paystub(s) documenting all YTD earnings, W-2 forms for the most recent two calendar years and a 10-day PCV Or all of the following: Written VOE documenting all YTD earnings and the earnings for the most recent two calendar years and a 10-day PCV
Tip income – Cash and charge tips reported on IRS Form 4137	History of receipt: Two years, consecutive Continuance: Must be likely to continue for at least the next three years Calculation: Refer to Section 5303.4(b) for calculation guidance and requirements	All of the following: IRS Form 4137 for the most recent two years Complete federal individual income tax returns covering the most recent two-year period 10-day PCV
Automobile allowance	History of receipt: Two-years, consecutive Continuance: Must be likely to continue for at least the next three years Calculation: 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: YTD paystub(s) documenting all YTD earnings, W-2 forms for the most recent two calendar years and a 10-day PCV Or all of the following: Written VOE documenting all YTD earnings and the earnings for the most recent two calendar years and a 10-day PCV
Mortgage differential	History of receipt: A history of receipt is not required for the income to be considered stable Continuance: Must continue for at least the next three years Calculation: Payments from the Borrower's employer for all or part of the housing payment differential between the Borrower's present and proposed Mortgage payment. The Seller may add the mortgage differential payments to the Borrower's income. The payments may not be used to offset the monthly housing payment amount used for qualification.	Agreement from the employer stating the terms including, but not limited to, the scheduled amount and duration of the payments. The documentation must show that the payments are pursuant to an established, ongoing and documented employer program. The employer must not be an interested party to the transaction.
Military entitlements (e.g., as flight or hazard duty, rations, clothing allowance or quarters allowance)	History of receipt: A history of receipt is not required for the income to be considered stable Continuance: Must be likely to continue for at least the next three years Calculation: Current fixed monthly amount	All of the following: YTD Leave and Earnings Statement, W-2 form for the most recent calendar year and a 10-day PCV Or all of the following: Written VOE documenting the current monthly fixed entitlement amount(s) and type(s) and the earnings for the most recent calendar year, and a 10-day PCV
Military Reserve and National Guard income	History of receipt: One year Continuance: Must be likely to continue for at least the next three years Calculation: 12-month average	All of the following: YTD Military Leave and Earnings Statement, W-2 form for the most recent calendar year and a 10-day PCV Or all of the following: Written VOE documenting all YTD earnings and the earnings for the most recent calendar year, and a 10-day PCV
Unemployment compensation associated with seasonal employment	History of receipt: Two years, consecutive Continuance: Must be likely to continue for at least the next three years Calculation: Refer to Section 5303.4(b) for calculation guidance and requirements	Proof of receipt of unemployment compensation for the most recent two-year period (e.g., IRS Form 1099-G(s) and/or equivalent documentation)