Income from all occupants of the household must be included as qualifying income regardless of whether or not they are obligated on the note. Income eligibility can be determined from the following USDA web site. Final eligibility must still be determined by USDA
When a borrower has a rental property it must also be included in the eligibility calculation.
- Positive net rental income is included in the eligibility income for the household
- Negative net rental income is counted as zero for eligibility income
The underwriter is responsible for calculating income and approving the loan. Applicants with commission only position’s, or varying amounts of overtime and bonus income may not exhibit enough stable monthly income to qualify. Typically, income of less than 24 months duration should not be included in qualifying income.
- Salaried Borrowers
- Pay-stubs covering most recent 30 day period, W-2’s for the previous two years and telephone verification of employment performed by Freedom Mortgage (paystub must show at least 30 days of year-to-date earnings).
- If overtime, commission, or bonus income is used for qualifying purposes the file must be documented with a two year history of receipt and be expected to continue.
- Standard VOE, sent directly to the employer, along with the borrower’s most recent paystub.
- Self-Employed Borrowers
- Copies of the borrower’s signed individual Federal tax returns that were filed with the IRS for the most recent two years. As an alternative, the Freedom may obtain IRS-issued transcripts of the borrower’s tax returns, as long as the transcripts include the information from all of the applicable schedules. The tax return documentation should be complete and include all appropriate schedules.
- The self-employed applicant also should submit current documentation of the business’s income and expenses, including any applicable Federal tax returns that were filed with the IRS for the most recent two years as well as year-to-date profit and loss and balance statements.
- Rental Income
- Rental income may only be counted for repayment income if the lease has been in place for at least two years. For leases older than two years, count positive net rental income in repayment income and negative net rental income as debt. If rental income is not received for a full two year period then the full PITIA must be used in the debt to income calculation.
- Rental income calculation – reduce monthly gross income by a 25% vacancy rate, and then the monthly PITI, HOA dues, etc. are subtracted. If positive then include in income if negative include in DTI.
All other income sources refer to USDA guidelines for all income guidelines and documentation requirements
- Assets are not required; however, any assets disclosed must be supported with appropriate documentation
- Satisfactory explanation and documentation should be provided for large deposits or increases in liquid assets
- Cash on hand is not acceptable
- Bank accounts require Verification of Deposit with average 2 month balance, or 2 consecutive months statements dated within 45 days of loan application
- Earnest money deposit may be considered an asset if deposit is not already reflected in liquid assets
- Asset amount of retirement accounts is 60% of the vested account balance
- Gifts must be documented through gift donor letter and establish that gift does not have to be repaid
- For sale proceeds of real property, provide HUD-1 or equivalent closing statement to indicate the actual amount of cash proceeds realized by the borrower
- Stocks and bonds must be documented by a statement provide by stockbroker or financial institution managing the portfolio
- Households with net family assets of greater than $5,000 require that the actual income derived from all net family assets or a percentage of the value of such assets based on the current passbook savings rate be considered when calculating income.