5303.2: Primary and secondary employment and income (08/29/18)

Primary employment is considered as the Borrower's primary source of employed income whether derived from employment such as full-time employment, part-time employment, full-time and/or part-time seasonal employment.

Secondary employment is considered as any type of employment (e.g., second part-time job or multiple jobs) that is in addition to the Borrower's primary employment.

(a) Employment history requirements – primary and secondary employment

(i) Primary employment

In most instances, the Borrower should have at least a two-year history of primary employment documented on Form 65, Uniform Residential Loan Application and verified in accordance with Topic 5300.For Borrowers who are active-duty members of the United States Armed Forces, a history of military employment is not required for the employment to be considered stable.The tenure of the Borrower's employment with the same employer or in the same or similar industry lends support to the analysis of employment stability.Under certain instances, when a Borrower has less than a two-year history of primary employment, the Seller may be able to justify and determine that the employment is stable. Examples that may support less than a two-year history of primary employment include, but are not limited to, the following:

For a Borrower returning to the workforce after a period of extended absence, for any reason, documentation is provided to support a stable employment history that directly preceded the extended absence
For a Borrower new to the workforce, documentation is provided that supports the Borrower's recent attendance at school or in a training program prior to their current employment
For a Borrower who experienced recent employment gaps (e.g., 30 days), documentation is obtained from the Borrower explaining the circumstances surrounding the gap(s)

(ii) Secondary employment

In most instances, the Borrower should have at least a two-year history of secondary employment for the employment to be considered stable. Under certain circumstances, when a Borrower has less than a two-year secondary employment history but has at least a 12-month history, the Seller may be able to justify and determine the employment is stable. Examples that may support less than a two-year history of secondary employment include, but are not limited to, the following:

The Borrower previously held a job with base non-fluctuating earnings working 40 hours per week for multiple years; however, due to reasons such as position elimination, work force reduction, or illness, the Borrower is no longer employed at this job and is now working at multiple part-time jobs that are similar in hours and pay, when combined, to the previous full-time job. Since the Borrower's full-time employment ended 18 months ago, the length of employment at each part-time job is in the range of 13 to 15 months. In this scenario, the Seller may be able to justify an employment history of less than two years for the secondary and additional jobs provided the earnings are consistent and the Borrower has exhibited the ability to repay obligations.
The Borrower is employed in the educational system as a teacher. During the previous summer the Borrower taught summer school within the same educational system and is now starting summer school teaching for the current year. Although the two-year history is not yet fully developed, given the job type and current employment situation, the Seller may be able to justify including the summer school income provided an accurate qualifying amount can be established and documented based on the previous and current earnings. Additional documentation to determine the stable monthly income may be appropriate (e.g., how many classes, how much, is it similar to prior year).

The requirements and guidance in this section are to be used in conjunction with the requirements and guidance in this chapter and in Section 5301.1.

(b) Earnings types – requirements and guidance

The following requirements and guidance apply to all primary and secondary employed income and all applicable employment characteristics including, but not limited to, full-time, part-time and seasonal employment.Refer to Section 5303.4 for information about income calculation requirements and guidance.

Earnings type	Requirements and guidance
Base non-fluctuating employment earnings	For the purpose of determining stable monthly income, base non-fluctuating employment earnings are considered to be earnings with a pre-determined and agreed upon rate of pay and number of hours worked each pay period. The pay rate and number of hours worked must be reflected on an ongoing consistent basis for each pay period and be fully supported by the year-to-date income. In addition, if the annual salary is reported on the income verification documentation, that may be considered additional confirmation of base non-fluctuating earnings. Base non-fluctuating earnings may include both exempt (salaried) and non-exempt earnings; however, the pay rate and number of hours worked must not fluctuate between pay periods Base non-fluctuating earnings may include military base (basic) pay. For members of the United States Armed Forces, active-duty pay is considered base non-fluctuating earnings. Base non-fluctuating earnings may include part-time earnings, provided the number of hours worked each pay period are pre-determined and the same, as outlined above Base non-fluctuating earnings do not include additional employed income (e.g., bonus, overtime, tips). Refer to Section 5303.3 for requirements and guidance pertaining to additional employed income.
Fluctuating hourly employment earnings	For the purpose of determining stable monthly income, fluctuating hourly employment earnings are considered to be employment earnings with hours that may fluctuate each week or pay period. The hours are not pre-determined; however, the employer and the Borrower may have a general expectation of weekly hours. The hourly pay rate is a pre-determined and agreed upon fixed amount. Fluctuating hourly earnings may be determined by a review of the year-to-date (YTD) income verification documentation with analysis focused on hours per pay period and YTD earnings in relation to hours worked Fluctuating hourly earnings are not considered base or salaried earnings Fluctuating hourly employment earnings are typically representative of non-exempt earnings Fluctuating hourly earnings do not include additional employed income (e.g., bonus, overtime, tips). Refer to Section 5303.3 for requirements and guidance pertaining to additional employed income.

(c) Documentation requirements

This chart contains documentation requirements pertaining to earnings types for primary and secondary employment.Refer to:

Section 5303.2(b) for additional information about base non-fluctuating and fluctuating hourly earnings types
Section 5303.2(d) for additional documentation that may be required based on employment characteristics
Section 5303.4 for additional information about income calculation requirements and guidance

Primary and secondary employment earnings types	Documentation requirements
Primary and secondary employment earnings types	Streamlined Accept and Standard Documentation Level(s)
Primary employment earnings: Base non-fluctuating earnings and Fluctuating hourly earnings	All of the following: YTD paystub(s) documenting all YTD earnings, W-2 form(s) for the most recent calendar year, and a 10-day pre-closing verification (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 calendar year, and a 10-day PCV (refer to Section 5302.2(d))
Primary employment earnings: Military base (basic) pay	All of the following: YTD Military Leave and Earnings Statement, W-2 form(s) 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
Secondary employment earnings: Base non-fluctuating earnings and Fluctuating hourly earnings	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

(d) Employment characteristics

For all employment characteristics below, the Seller must determine whether the employment represents primary or secondary employment and use the applicable requirements for history, continuance, earnings type, documentation and calculation in this chapter and in conjunction with Chapters 5301 and 5302, unless specifically stated otherwise. For certain employment characteristics, additional documentation and/or analysis may be needed, as described below.

Employment characteristics		Additional requirements
Full-time and part-time employment	Full-time and part-time employment may be either primary or secondary employment, and may be comprised of base non-fluctuating earnings, fluctuating hourly earnings and/or additional employed income.	None
Seasonal employment	Seasonal employment may be primary employment (e.g., highway construction and road work in colder regions) or secondary employment (e.g., educators teaching summer school). The Borrower's earnings may be comprised of base non-fluctuating earnings, fluctuating hourly earnings and/or additional employed income.	When unemployment income associated with the seasonal employment is being used as stable monthly income: A documented two-year history of seasonal employment and income receipt is required, and The requirements for unemployment income associated with seasonal employment in Section 5303.3 must be met
Union members	Certain union members may work in industries where they may switch employers frequently and the union facilitates the next position. In that case, the Borrower may have multiple YTD paystubs and W-2s, all of which can be used for the verification and calculation of stable monthly income. The Borrower's earnings may be comprised of base non-fluctuating earnings, fluctuating hourly earnings and/or additional employed income. A Borrower may exhibit a stable and consistent employment and income history, regardless of the number of employers. The Borrower may be in between employers at the time of closing. If the Seller determines that the Borrower's employment and income history is stable and it is documented that the Borrower has multiple jobs as described above, it may be acceptable to obtain the 10-day PCV (refer to Section 5302.2(d)) through the union. The Seller must make this determination based on a review of all employment and income characteristics.	None
Borrower employed by a family member or by the property seller, real estate broker or other interested party to the transaction	When a Borrower is employed by a family member or by an interested party to the transaction, the employment and income is not arm's length. Due to the increased layering of risk inherent in non-arm's length transactions, further in-depth analysis is required to determine stability of the income.	Complete signed federal individual income tax return for the most recent year
Employed income from a foreign source	When a Borrower receives employed income from a foreign source, the income may be considered for qualifying income provided the income is reported on the Borrower's U.S. federal individual income tax return for the most recent year, in addition to meeting the requirements in Chapter 5303. Refer to Chapter 5305 for all other non-employment/non-self-employment income from a foreign source.	Complete signed U.S. federal individual income tax return for the most recent year
Employment contracts	(i) Employment contracts in the educational industry:It is common for Borrowers who work in the educational industry, such as teachers, to be employed under renewable or term employment contracts.For the educational field, if the Borrower provides an annually renewable or term contract, it is reasonable to consider continuance of receipt, provided the Seller does not have knowledge or documentation to the contrary.	None
Employment contracts	(ii) Employment contracts in other industries:If an employment contract is provided, it may also be considered for the purposes of determining stable monthly income.When making the determination of employment history, income stability and the monthly income amount, the Seller must take into consideration factors such as whether or not employment contracts are reasonably common to the particular employment field and/or region, the pay structure outlined within the terms of the contract and whether the Borrower has demonstrated the ability to maintain consistent employment and income with this form or a similar form of pay structure over the most recent two years.	Obtain a documented two-year history of income and employment in the same or a similar employment field or industry when the terms of the employment contract do not include a base non-fluctuating pay structure
Temporary help services employment	Some contract firms and temporary staffing firms contract out the services of their employees to other employers. When making the determination of employment history, income stability and the monthly income amount, the Seller must take into consideration factors such as whether the Borrower has demonstrated the ability to maintain steady and continuous employment and income with this employment structure over the most recent two-year period.	W-2 forms from the contract and/or temporary staffing firm for the most recent two-year period
Income reported on Internal Revenue Service (IRS) Form 1099	At times, Borrowers receive IRS Form 1099(s) for services performed; this pay structure is often referred to in terms such as contractor or contingent worker. Income received on IRS Form 1099 for services performed may be reported on Schedule C and may represent a sole proprietorship. If the Seller determines that the Borrower is a sole proprietor, refer to the requirements and guidance in Chapter 5304. Factors the Seller may consider when determining whether income reported on Schedule C is representative of a sole proprietorship include, but are not limited to, the principal business or profession, gross receipts or sales, cost of goods sold and the type and level of expenses reported.	All 1099s for the most recent two-year period, and YTD paystubs or YTD earnings statements received by the Borrower, and Complete federal individual income tax returns covering the most recent one-year period, and The Seller must determine if more information and documentation is needed for determining stable monthly income.

(e) Income commencing after the Note DateFor Borrowers starting new employment or receiving a future salary increase from their current employer, income commencing after the Note Date may be considered a stable source of qualifying income, provided that either all requirements for option one, or all requirements for option two in the following table are met.

Subject	Option one	Option two
Eligible employment and income	Employment and income must meet the following requirements: Income must be from new primary employment or a future salary increase with the current primary employer Income must be non-fluctuating and salaried (e.g., hourly earnings are not permitted), and The Borrower's employer must not be a family member or an interested party to the real estate or Mortgage transaction	Employment and income must meet the following requirements: Income must be from new primary employment Income must be non-fluctuating and salaried (e.g., hourly earnings are not permitted), and The Borrower's employer must not be a family member or an interested party to the real estate or Mortgage transaction As of the Delivery Date, the income must be no less than that used to qualify the Borrower for the Mortgage
Start date of the new employment or future salary increase, as applicable	Must be no later than 90 days after the Note Date May be before or after the Delivery Date	No limit on the number of days after the Note Date Must be before the Delivery Date
Eligible loan purpose	The Mortgage must be originated for one of the following purposes: Purchase transaction "No cash-out" refinance	The Mortgage must be originated for one of the following purposes: Purchase transaction "No cash-out" refinance Cash-out refinance
Eligible Mortgaged Premises	The Mortgaged Premises must be a 1-unit Primary Residence	The Mortgaged Premises must be one of the following: 1- to 4-unit Primary Residence Second home 1- to 4-unit Investment Property
Verification of additional funds	In addition to funds required to be paid by the Borrower and Borrower reserves, the Seller must verify additional funds in the Borrower's depository and/or securities account(s) that equal or exceed the amount of the monthly housing expense, as described in Section 5401.1, and other monthly liabilities, as described in Section 5401.2, due between the Note Date and the start date of the new employment/future salary increase, plus one additional month. A partial month is counted as one month for the purpose of this calculation. The amount of the required additional funds may be reduced by the amount of verified gross income that any Borrower on the Mortgage is expected to earn during the period described above, whether or not this income is used to qualify for the Mortgage or is expected to continue after the start date of the new employment/future salary increase.
Required documentation	The following documentation is required: Copy of the employment offer letter, employment contract or other evidence of the future salary increase from the current employer that: Is fully executed and accepted by the Borrower Is non-contingent or provide documentation, such as a letter or e-mails from the employer verifying all contingencies have been cleared, and Includes the terms of employment, including employment start date and annual income based on non-fluctuating earnings For a future salary increase provided by the Borrower's current employer, the above documentation must indicate that the increase is fully approved and is explicitly granted to the Borrower A 10-day pre-closing verification (PCV) verifying the terms of the employment offer letter, contract or future salary increase have not changed (refer to Section 5302.2(d)) Documentation of additional funds, as required above	The following documentation is required: Copy of the employment offer letter or employment contract that: Is fully executed and accepted by the Borrower, and Includes the terms of employment, including but not limited to, employment start date and annual income based on non-fluctuating earnings Documentation of additional funds, as required