How To Use Bonus Overtime As Income When Less than 2 years!
The written Verification of Employment box that says is overtime income likely to continue must be marked YES!
Overtime and bonus income can be used to qualify the FHA Mortgage Applicants if he/she has
received this income for the past two years, and it will likely continue. If the
employment verification states that the overtime and bonus income is unlikely
to continue, it may not be used in qualifying.
The FHA mortgage lenders must develop an average of bonus or overtime income for the past
two years. Periods of overtime and bonus income less than two years may be
acceptable, provided the FHA mortgage lenders can justify and document in writing the reason
for using the income for qualifying purposes.
The FHA mortgage lenders must establish and document an earnings trend for overtime and
bonus income. If either type of income shows a continual decline, the FHA mortgage lenders
must document in writing a sound rationalization for including the income
when qualifying the FHA Mortgage Applicants.
A period of more than two years must be used in calculating the average
overtime and bonus income if the income varies significantly from year to
Part-time and seasonal income can be used to qualify the FHA Mortgage Applicants if the
FHA mortgage lenders documents that the FHA Mortgage Applicants has worked the part-time job
uninterrupted for the past two years, and plans to continue. Many low and
moderate-income families rely on part-time and seasonal income for day to
day needs, and FHA Mortgage FHA Mortgage FHA mortgage lenders should not restrict consideration of such income when qualifying these FHA Mortgage Applicants.
Part-time income received for less than two years may be included as
effective income provided that the FHA mortgage lenders justify and documents that the
income is likely to continue.
Part-time income not meeting the qualifying requirements may be considered
as a compensating factor only.
Note: For qualifying purposes, “part-time” income refers to employment
taken to supplement the FHA Mortgage Applicants’ income from regular employment; parttime
employment is not a primary job and it is worked less than 40 hours.
Seasonal income is considered uninterrupted and may be used to qualify the
FHA Mortgage Applicants, if the FHA mortgage lenders documents that the FHA Mortgage Applicants
has worked the same job for the past two years, and
expects to be rehired the next season.
Seasonal employment includes
umpiring baseball games in the summer, or
working at a department store during the holiday shopping season.
When an FHA Mortgage Applicants’ primary employment is less than a typical 40-hour work
week, the FHA mortgage lenders should evaluate the stability of that income as regular, ongoing
Example: A registered nurse may have worked 24 hours per week for the last
year. Although this job is less than the 40-hour work week, it is the
FHA Mortgage Applicants’ primary employment, and should be considered effective income.
Commission income must be averaged over the previous two years. To
qualify with commission income, the FHA Mortgage Applicants must provide
copies of signed tax returns for the last two years, and
the most recent pay stub.
Commission income showing a decrease from one year to the next requires
significant compensating factors before an FHA Mortgage Applicants can be approved for the
An FHA Mortgage Applicants whose commission income was received for more than one year,
but less than two years may be considered favorably if the underwriter can
document the likelihood that the income will continue, and
soundly rationalize accepting the commission income.
Unreimbursed business expenses must be subtracted from gross income.
A commissioned FHA Mortgage Applicants is one who receives more than 25% of his/her
annual income from commissions.
A tax transcript obtained directly from the Internal Revenue Service (IRS)
may be used in lieu of signed tax returns, and the cost of the transcript may
be charged to the FHA Mortgage Applicants.
Commission income earned for less than one year is not considered effective
income. Exceptions may be made for situations in which the FHA Mortgage Applicants’
compensation was changed from salary to commission within a similar
position with the same employer.
An FHA Mortgage Applicants may also qualify when the portion of earnings not attributed to
commissions would be sufficient to qualify the FHA Mortgage Applicants for the mortgage.