Section Subtopics Employment TypesOf Acceptable Income

 Types of Acceptable Income and how they are calculated:

  

  Salary / W-2 Income: Underwriters generally calculate

  income from the pay stub and use the W-2 to verify their

  findings.  To find your monthly income from a weekly pay

  stub they multiply the amount by 52 and divide that by 12. 

  Overtime or Bonus Income: Both may be used to qualify

  the borrower as long as the income has been received for the

  past two years and is likely to continue.  An average of the

  bonus or overtime income over the last 2 years is used

  Part-time Income: Part-time income (second job) may be

  used in qualifying if the borrower has a 2-year employment

  history without interruption.  Seasonal employment may be

  used if the borrower can demonstrate a 2-year history and

  the probability of continuation.  Income from part-time

  positions that does not meet these requirements should be

  considered as a compensating factor only.

  Commission Income: Commission income must be

  averaged over the previous 2 years.  The borrower must

  provide his/her last 2 years Federal tax returns (1040's) with

  all schedules.  Any un-reimbursed business expenses must

  be subtracted from the gross income.  

  Retirement / Social Security Income: Verification from the

  source is required.  If the income should expire within 3

  years, the income cannot be used to qualify the borrower

  and used only as a compensating factor

  Alimony, Child Support, or Separate Maintenance:

  Though not required for qualification, a borrower who

  chooses to use this income must 1) provide a 12 month

  payment history from the ex-spouse or courts showing

  timely payment and 2) provide evidence that such payment

  will continue for at least 3 years.  A copy of the divorce

  decree, settlement agreement, etc. will be necessary.

  Notes Receivable: A copy of the note and evidence that

  payments have been received for a minimum of 12 months

  are required.  Should the note expire within 3 years, it can

  be used as a compensating factor only.

  Interest and Dividends:   Interest and dividend income may

  be used   provided documentation (such as tax returns or

  account statements) supports a 2 year history of receipt.

  This does not include dividend re-investment plans.

  Rental Income: Rent received from investment properties

  owned by the borrower may be used, subject to the proper

  documentation.  Income from roommates, etc., in a single-

  family property to be occupied as the borrower's primary

  residence is not acceptable.  Rental income is calculated 

  from the borrower’s Schedule E of their 1040's.

  Depreciation can be added back to the borrower's net rental

  income.  Positive rental income is considered as gross

  income for qualifying purposes; negative rental income must

  be treated as a recurring liability.  Copies of the leases must

  support a continuation of the income.

  Self-Employment Income: A borrower with 25% or more

  ownership interest in a business is considered self-

  employed.  The income from borrower's self-employed less

  than one year is not acceptable.  Borrower must supply the

  following:  1) personal tax returns for the most recent 2

  years (with all schedules), 2) K-1's, 1120's or 1120S's for the

  last 2 years, financial statements (profit and loss statement

  and a balance sheet) for the interim and last 2 years, 3)

  borrower will have to sign an 8821 or 4506 income taxes

  release form (see lender).