Kentucky USDA Guaranteed loans applicant’s household income cannot exceed adjusted annual income limits
7 CFR 1980.347 Annual Income
To participate in the SFHGLP, an applicant’s household income cannot exceed adjusted annual
income limits as set forth in 7 CFR 1980 1980.345(a). The calculation of annual income, as set forth in
7 CFR 1980.347, require the lenders to document the annual income for all adult members of the
household. All sources of income in the household must be considered in the determination, regardless
of whether the household member is a party to the note. Current verified income should be used to
estimate the household’s annual income over the ensuing 12 months, unless there is verified evidence
of a likely change in circumstances, or historical data which does not support current income. Lenders
should use the gross amount before any payroll deductions of base wages and salaries, overtime pay,
commissions, fees, tips, bonuses, housing allowances, income from deposit accounts, investments and
other assets, unemployment benefits and other compensation for personal services of all adult members
of the household.
Once the income source is verified, the lender must project the expected income from this source for
the next 12 months. This calculation is used only to determine the household eligibility for the
SFHGLP. This calculation does not necessarily represent stable and dependable income for
repayment of the loan. This projection should be based on a comparison and analysis to establish
earning trends and avoid underestimating annual income for the household. The following methods
represent examples of calculating annual income. The lender should choose the most representative
calculation method which most accurately reflects the applicant’s income to be received during the
next 12 months and validated by supporting documentation.
Income Type Definition of Income Example Guidance Example Calculation
Straight Income Straight is based upon the
wage or benefit amount
and converted to the annual
equivalent.
For example, if an applicant is
paid hourly and works 40 hours
per week, income would be
derived by multiplying the hourly
wage by 2080 hours (for part-time
For example:
$20/hour x 2080 hours per year
(40 hours/week x 52 weeks/year)
= $41,600.
Overtime paid at $30/hour x 50 employment use anticipated
annual hours). If paid weekly, the
weekly wage is multiplied by 52
weeks. Bi-weekly paid
employee’s wages are multiplied
by 26 weeks and a monthly wage
is multiplied by 12 months.
hours/year = $1,500.
Total wages in this example:
$43,100.
Averaging Income Averaging income is
permissible if reported on
the pay stubs or benefit
statements for the last 30
days and covert to the
annual equivalent.
An example is of an applicant
who has submitted income
records for the period of the last
30 days.
For example:
The gross income received in the
past 30 days is $5,192 as verified
by pay stubs.
Multiply $5,192 by 12 to arrive at
the annual income of the
household.
$5,192 x 12 = $62,304.
Year-to-date
(YTD)
Year-to-date (YTD) gross
earnings divided by the
YTD interval, which is the
number of calendar days
elapsed between January 1
of the current year and the
date of the most recent
income verification,
multiplied by 365.
The YTD interval should be
closely examined to determine the
appropriateness of this method.
Lenders should not use this
method if the duration of the
YTD interval is insufficient, i.e.,
too short, to make a credible
annual projection. Generally,
there should be at least 3 months
of earnings when using this
method.
For example:
The applicant worked 230 days to
date (e.g. August 18) and income
earned during that time period is
$40,000.
Divide $40,000 by 230 days;
arrive at $173.91/day, then
multiply by 365 to arrive at the
annual income of $63,477.15.
Historical Income Historical income as
reported on the previous
year’s tax return is used.
Consider the time of year and the
reasonableness of this approach.
For example, if the income
documentation submitted is for
January of the current calendar
year, the historical data from the
previous year may be utilized.
For example:
The date is January 15. The most
representative income for the
applicant is the previous 12
months. The applicant earned
$60,000, in the previous tax year.
The applicant worked all year.
The anticipated annual income for
the ensuing year is $60,000.
7 CFR 1980.348 Adjusted Annual Income
Deductions may be made to determine the adjusted annual income which will be used to determine
eligibility. Adjustments to the annual income determination, in accordance with 7 CFR 1980.348,
include:
deductions for dependants
deductions for child care expenses
deductions for qualifying elderly household member(s)
deductions for the care of household members with disabilities
deductions for medical expenses related to elderly households
To be eligible, the adjusted annual income must be within the applicable published income limits of
the county in which the subject property is located. Current income limits may be found at
http://eligibility.sc.egov.usda.gov/eligibility/.
Attachment A to this AN is provided as an aid to document eligibility of the household for the
SFHGLP. Completion of the attachment will demonstrate the lender has accurately computed
eligible income for the household. The determination of eligible household income should be
retained in the lenders permanent case file in accordance with 7 CFR 1980.347.
Documentation of Eligible Household Income
The lender’s permanent case file must retain supporting documentation that Agency guidelines have
been met. Attachment A provides lenders a format for documenting their income determination from
the various household income sources. An example of a case study of household income and an
example of a completed income determination follows the attachment.
The lenders calculation and determination of eligible household income should be submitted for all
requests for guarantee in accordance with 7 CFR 1980.353(c).
Lenders who utilize the Agency’s automated underwriting system are not required to submit
documentation of the household’s income verifications when receiving an “Accept” underwriting
recommendation, except as otherwise provided below. All documentation will be retained in the
lender’s permanent loan file for audit purposes.
The loan application package forwarded to the Agency must include copies of all income verification
documents from all sources/types of income from all household members in the following cases:
Manually underwritten loans that were not submitted through the Agency’s Guaranteed
Underwriting System (GUS).
Manually underwritten loans receiving a “Refer” or “Refer with Caution” underwriting
recommendation when utilizing GUS.
Lenders receiving an “Accept” underwriting recommendation do not need to submit income
verifications except when the GUS underwriting findings indicate the loans were selected for a quality
control review (Lender Condition 31063 on the GUS Underwriting and Findings Report). Lender
Condition 31063 is a quality control message requiring lenders to submit documentation supporting
their commitment request. The GUS system randomly selects final applications receiving an “Accept”
underwriting recommendation. When triggered, the lender should submit documentation noted on
Attachment C to this AN when requesting a commitment. This quality control measure ensures
lenders are accurately identifying, verifying, calculating and documenting eligible household income.
It also validates the integrity of the lender’s data in GUS.
Confirming Lender’s Determination of Eligible Household Income
For manually underwritten loans, agency staff should recalculate the lender’s determination of eligible
income if the lender’s adjusted annual income calculation is within 10 percent of the income limit. Agency staff will utilize Attachment B to this AN to record the Agency’s calculation. Attachment B
will be imaged with essential documents in the Agency’s Imaging Repository.
Lender Action:
Identify, Verify, Calculate and Document Repayment Income to Qualify the Loan
7 CFR 1980.345 Adequate and Dependable Income
Repayment income often differs from annual adjusted income; repayment income must be treated
independently of the household’s adjusted annual income. Lenders use repayment income to
determine if applicant(s) have sufficient income to repay the mortgage in addition to other recurring
debts. To compute repayment income, the lender will count only the income of persons who will be
parties to the note.
The anticipated repayment income, and its likelihood of continuance, must be established to determine
the applicant’s capacity to repay the loan. Income from any source that cannot be verified, is not
stable, or cannot be reasonably expected to continue for at least the next three years, must not be used
in calculating the applicant’s repayment income. The lender must determine the sources of all income
and that the income is stable. There is no minimum length of employment to consider the income as
adequate and dependable. However, the lender must verify the applicant’s employment for the most
recent two full years and verify that the applicant’s income has been and will be stable. In most
instances, a two-year history of receiving income is required in order for the income to be considered
stable. The lender should focus on the applicant’s occupation, tenure, past employment history and
probability of continuation.
Many income sources such as commission, bonus, overtime, tips and income from a second job should
have a documented two year history. If less than a two year history is utilized for qualifying the loan,
the lender must document in their underwriting analysis a credible basis for determining the income as
stable and dependable.
Non-employment income sources such as child support, alimony, public assistance payments, social
security, retirement, etc., can be considered stable to the extent that they are reasonably expected to
continue for at least the next three years.
Generally, income from self-employment is considered stable and dependable if the applicant has been
self-employed for two or more years documented by not less than two years of income tax returns.
Projected or hypothetical income from any source is not acceptable for repayment purposes.
The Guaranteed Underwriting System (GUS) does not evaluate the stability and dependability of
repayment income in the overall risk evaluation. The lender must determine the history and stability of
earnings prior to entering repayment income into GUS. Lender Action:
Determination and Documentation of Repayment Income
The lender’s permanent case file must retain supporting documentation stable and dependable income
in accordance with
Attachment A provides lenders a format for documenting the various sources and analysis supporting
the adequate and dependable income calculations.
The loan application package forwarded to the Agency must include copies of all income verification
documents supporting the calculation and determination of stable and dependable income for all
parties to the note in the following cases:
Manually underwritten loans that were not submitted through GUS.
Manually underwritten loans receiving a “Refer” or “Refer with Caution” underwriting
recommendation when utilizing GUS.
Authorized lenders receiving an “Accept” underwriting recommendation do not submit income
verifications except whether GUS underwriting findings indicate the loan was selected for a quality
control review (Lender Condition 31063 on the GUS Underwriting and Findings Report) Lender
Condition 31063 is a quality control message requiring lenders to submit documentation supporting
their commitment request. The GUS system randomly selects final applications receiving an “Accept”
underwriting recommendation. When triggered, the lender should submit documentation noted on
Attachment C to this AN when requesting a commitment. This quality control measure ensures
lenders are accurately identifying, verifying, calculating and documenting stable and dependable
income when qualifying the loan. It also validates the integrity of the lender’s data in GUS.
Confirming Lender’s Determination of Repayment Income
For manually underwritten loans, agency staff should recalculate the lender’s determination of
repayment income for manually underwritten loans, during the review process, if the lender’s
repayment ratios are within 10 percent of the maximum debt ratio limits. Repayment ratios greater than
26.0 percent of principal, interest, taxes and insurance (PITI), and/or greater than 37.0 percent total
debt ratio (TD) require Agency staff to recalculate repayment income. Agency staff will utilize
Attachment B to this AN to record the Agency’s calculation. Attachment B will be imaged with
essential documents in the Agency’s Imaging Repository. Agency Action:
38.242149
-85.576818
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