Wednesday, November 20, 2013

Acceptable Income for a Louisville KY VA Home Mortgage Loan


  • Regardless of AUS Findings, all borrowers with qualifying income must have an acceptable and stable employment history, minimum of 2 years, to be considered effective income for qualifying purposes. Letter of Explanation is required on all gaps of employment exceeding 30 days.
  • For employment of <12 months with the current employer, satisfactory documented compensating factors are required. Satisfactory compensating factors include, but are not limited to:
    • Recently discharged from active duty and in a similar or related line of work.
    • Applicant has sufficient training or job skills to substantiate the likelihood of continued employment.
    • Change of employment is to the betterment of the applicant; such as career advancement or increased earnings (must be in same line of work).
  • Borrower must provide LES no more than 120 days old at time of closing
  • If borrower is within 12 months of separation from military service:
    • Evidence service member has reenlisted, or has extended his/her period of active duty, to a date greater than 12 months from the date of closing.
    • Verification of a valid offer of local civilian employment following release from active duty at the same, or greater, rate of compensation.
    • Statement from service member that he/she intends to reenlist, or extend his/her period of active duty, to a date greater than 12 months plus a statement from the service members commanding officer confirming eligibility to reenlist or extend period of active duty as indicated and that the commanding officer has no reason to believe that such reenlistment, or extension of active duty, will not be granted.
  • Analysis of Military Pay:
    • Military Quarters Allowance and any additional variable housing allowance may be included.
    • Subsistence Allowance may be included.
    • Clothing Allowance may be included. Clothing Allowance is an annual amount and must be converted to monthly.
    • Other Military Allowances such as Propay, flight, hazard, overseas, and combat pay are not typically allowed to be included.
  • May not have more than 25% ownership interest in business
  • Commission, overtime, bonus and tip income is acceptable with a verified two-year history of receiving that type of income. Income from these sources must be averaged over the previous 2 years unless the income is declining and then the lower of the previous 2 year average or average based on YTD will be used.
  • Verifiable employer phone number and address must be obtained from an independent source. Example: Phone number cannot be a cell phone as that number cannot be verified.
  • A Verbal VOE is required on all borrowers and must be completed the day of closing.
  • For school teachers pay, a full written VOE is required to clarify whether pay stubs are for 9 month or 12 month pay schedule
  • Self-employed borrowers, with >25% ownership interest, are required to have a minimum 2 years of consecutive self-employment.
  • Income must be averaged over the previous 2 years unless the income is declining and then the lower of the previous 2 year average or average based on YTD will be used. Fannie Mae’s Self-employed Income Analysis Form 1084A or 1084B should be used to calculate net monthly income.
  • Business phone number and address must be obtained from an independent source.
  • Significant declining self-employment income is not eligible.

  • Fixed income sources must document a history or regular receipt and the probability of continuance for a minimum of 3 years.
  • Non-taxable income may be “grossed-up” by the lesser of the borrower’s tax rate or 25%. Non-taxable income may not be “grossed-up” for the Residual Income calculation.
  • Alimony, Child Support and Separate Maintenance Income must be documented by a copy of the divorce decree or court order and satisfactory evidence of 12 months receipt of income and 3 years continuance.
  • Worker’s Compensation and Permanent Disability must be documented by an award letter and 3 years continuance.
  • Pension and Social Security Income may be documented by tax returns, award letter, or 2 months bank statements.
  • For properties owned during a previous tax year, rental income will be calculated from the borrowers 2 most recent years 1040 tax returns Schedule E. All pages and schedules to tax returns are required.
  • For properties not owned during a previous tax year, cash flow must be based on 75% of the lesser of actual rents or market rents.
  • Rental income may be used to offset the property obligation ONLY. Positive net rental income may not be used as effective income.
  • Cash reserves totaling at least 3 months PITI per investment property owned.
BOARDER INCOMEBoarder income may be considered on a case-by-case basis only if reflected on borrower’s tax returns.
  • Borrower must have a 2 year history of receiving income from both a primary and a part-time or second job to be considered.
  • The lesser of the previous 2 year average or current YTD average should be used to qualify.
TRAILING SPOUSE INCOMEMay be used as a compensating factor only.
ALIMONY, CHILD SUPPORT, OR SEPARATE MAINTENANCECourt ordered payments should be documented by a copy of the court order, satisfactory proof of receipt for the previous 12 months, and evidence of continuance for 3 years after closing.
RESIDUAL INCOMEVA requires each applicant to have sufficient residual income to cover family living expenses after the deduction of debts and obligations and monthly shelter expenses. Residual income requirements are dependent upon “family size” to include a spouse not joining in title or on the note and any other individuals who depend on the applicant for support. Only family members fully supported from a source of verified income (such as foster care or child support income) which, for whatever reason, is not included in effective income in the loan analysis may be omitted from the residual income calculation.
Tables and instructions for the determination of the borrower’s minimum residual income may be found in the VA Lender’s Handbook, Chapter 4. Only the base amount of any “grossed up” income may be used in the residual income calculation.
OTHER INCOMEMay be considered on a case-by-case basis only.
  • Income of less than 12 months in duration.
  • Education benefits (including payments from the VA for this purpose).
  • Per Diem income.
  • Car allowance or mileage reimbursement (unless claimed on the borrower’s tax returns)
  • Military hazardous duty pay.
  • Any source of income that cannot be verified.
  • Foreign employers.
  • Any unstable sources of income (e.g. significant year-to-year decreases in income for self-employed borrowers).
  • Illegal activities.
  • Gambling income

Joel Lobb (NMLS#57916)
Senior  Loan Officer