Click on checklist to download a comprehensive list of documentation needed for the typical loan application
- Paystubs or LES covering most recent 30 days available
- W2's for two most recent years
- Personal tax returns for two most recent years
For self employed persons
- Year to date Profit and Loss statement and balance sheet
- Business Tax returns for two most recent years
Basic employment documentation required
Helping Military and Civilian families realize the dream of homeownership since 1990
USDA guidelines require that a lender verify employment history, a borrower's employment record and establish both the eligibility income and the qualifying income.*
Let's take a look at how qualifying income is handled.
Verifying Employment History
A 2 year history of employment in the same line of work is required in most cases. Any gaps in employment must be explained and documented.
Exception: If you were attending school or spent in the military, that time is included in the two year requirement, however, the buyer must be at his/her current position for at least 6 months.
Someone who has changed employers more than 3 times in the previous 12 months must document that it was done for advancement or that it is typical for the line of work (such as temp companies or union trades).
Check out the required documentation
Returning to work after extended absences
USDA defines an extended absence as any period of 6 months or more. This includes someone returning to work after taking several years off to raise children.
Those returning to work after an extended absence:
- Must be in the current job for 6 months or more AND
- Be able to document a two year history in the same line of work prior to the absence
Verifying effective income
The requirements for verifying and calculating effective income vary depending on the source.*
Primary Employment
Salary:
Current salary is used as effective income
Hourly:
Income is calculated based on the average number of hours worked x current hourly rate
Military Income:
Income received from active duty, Reserve or Notional Guard service is included in qualification as long as it is likely to continue.
Military education benefits ARE not included for qualifying.
Active duty service members with less than 12 months remaining on their current contract must either document that they have re-enlisted, that they have employment already lined up
Auto Allowance:
Can be used to offset a monthly car payment only if it has been received for the previous two years
Overtime, Bonus and Commission
Overtime and Bonus:
Can be considered effective income if it has been received for at least two years and is likely to continue.
An average of the previous year and Year To Date is used.
Commission:
Must be earned for at least two years in the same or similar line of work and must be documented as likely to continue.
An average over the length of time that commission has been earned (not to exceed 24 months) is used to qualify.
Part Time Employment
A history of working a part time job uninterrupted for the past two years is required. Also, the job must be likely to continue.
A 24 month average of the income must be used. If Ia pay increase can be documented, a 12 month average of HOURS is used based on the current pay rate.
Self Employed Income
An individual is considered to be self employed if he/she has 25% or greater ownership interest in the business.
Self employment income of less than two years will only be considered if there is at least a one year history and it can be documented that he/she was employed in the same line of work as the business for at least two years.
A 24 month average of the income, as reflected on tax returns, is used for qualifying.
If the income is lower for the most recent tax return, then a one year average of the lower income is used.
Rental Income
Rental income from subject property
Only allowed if :
- Property is a 2-4 unit property AND
- A history of experience as a landlord is documented AND
- 6 months PITI cash reserves are verified
Rental income from property being vacated
The amount of rent can only be used to offset the housing payment. Positive rental income cannot be used as qualifying income
Rental income from other property
A 24 month average from the net rental income will be used.
Where there is no history of rental income, 75% of the verified rent is used to offset the housing/property obligations (taxes, ins, HOA).
Any negative rental totals will be included as a debt/liability for qualification purposes.
Retirement Income
Social Security and Pension Income (not disability)
Income can be used if it is likely to continue for 3 years.
Copy of the "award" letter is required to verify amount due along with bank statement verify the receipt of the funds
IRA and 401K Income
Must have at least a guarantee of continuing for 3 years from the closing date.
If the amount fluctuates, an average of up to 2 years can be used.
Some non taxable income can be grossed up for qualification purposes.
Disability Income
You must provide documentation to verify the amount of benefits awarded and that the income is to continue for at least 3 years from the closing date.
Social Security and Private disability benefits
Copy of the "award" letter with the expiration date of the benefits is required
VA disability
A copy of the "award" letter is required. If no expiration date is listed, then it is assumed that it will continue for at least 3 years.
Some non taxable income can be grossed up for qualification purposes.
Alimony and Child Support
Can be used as effective income if
- amount due can be documented via divorce decree, legal separation agreement, court order or signed voluntary payment agreement
- the amount is going to continue for 3 years from the closing date
- evidence of receipt can be documented.
12 months of canceled checks, deposits slips or bank statements are required to document receipt of the income. Shorter periods up to 6 months are allowed if the agreement has been in place for less time.
*This overview is not all inclusive and does not include all guidelines, situations or sources of allowed income. Contact us or your lender for additional information that applies to your situation.
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Laura Borja | Senior Mortgage Consultant | NMLS#199107
Cell: (619) 992-4061
laura@lauraborja.com
27271 Las Ramblas ste 350 Mission Viejo CA 920691
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