Variable Income for A Mortgage Loan Approval in Kentucky

How to get approved for a Kentucky FHA, VA, USDA and Fannie Mae Mortgage loan with Variable Income 

 Variable INCOME if your borrower is not hourly at 40 hours a week or salary do you fall within VARIABLE INCOME?? Yup we all dislike that is calculated by an averaging method..

Examples of income of this type include income from hourly workers with fluctuating hours, or income that includes commissions, bonuses, or overtime.

History of Receipt: Two or more years of receipt of a particular type of variable income is recommended; however, variable income that has been received for 12 to 24 months may be considered as acceptable income, as long as the borrower’s loan application demonstrates that there are positive factors that reasonably offset the shorter income history.

Frequency of Payment: us as a lender must determine the frequency of the payment Examples:
If a borrower is paid an annual bonus on March 31st of each year, the amount of the March bonus should be divided by 12 to obtain an accurate calculation of the current monthly bonus amount.

Note that dividing the bonus received on March 31st by three months produces a much higher, INACCURATE monthly average.

If a borrower is paid overtime on a biweekly basis, the most recent paystub must be analyzed to determine that both the current overtime earnings for the period and the year-to-date overtime earnings are consistent and, if not, why.

There are legitimate reasons why these amounts may be inconsistent yet still eligible for use as qualifying income. For example, borrowers may have overtime income that is cyclical (transportation employees who operate snow plows in winter, package delivery service workers who work longer hours through the holidays).

We must investigate the difference between current period overtime and year-to-date earnings and document the analysis before using the income amount in the trending analysis.

Income Trending: After the monthly year-to-date income amount is calculated, it must be compared to prior years’ earnings using the borrower’s W-2’s or signed federal income tax returns (or a standard Verification of Employment completed by the employer or third-party employment verification vendor).

If the trend in the amount of income is stable or increasing, the income amount should be averaged.

 If the trend was declining, but has since stabilized and there is no reason to believe that the borrower will not continue to be employed at the current level, the current, lower amount of variable income must be used.

If the trend is declining, the income may not be stable.

Additional analysis must be conducted to determine if any variable income should be used, but in no instance may it be averaged over the period when the declination occurred.

Joel Lobb  Mortgage Loan Officer

American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364

Text/call: 502-905-3708
fax: 502-327-9119
email: kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

NMLS 57916  | Company NMLS #1364/MB73346135166/MBR1574
Get Approved Now Click Here

The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people.
NMLS ID# 57916, (www.nmlsconsumeraccess.org).

Kentucky FHA Job Gap Guidelines Explained

Job History and Income Requirements

Kentucky Government Mortgage FHA

Question:

Can you help me understand how Kentucky Mortgage loans backed by FHA treats job gaps?

Answer:

A borrower must have a full 2-year history of employment/school/military service immediately prior to application. If there are any extended gaps within that 2-year period then the “Addressing Gaps in Employment” guideline is triggered, even if the gap did not occur immediately prior to the current job.

Reference:

FHA ML 2022-09 – this version has not yet been updated in the 4000.1 handbook , but must be used.

(B) Addressing Gaps in Employment

For Borrowers with gaps in employment of six months or more (an extended absence), the Mortgagee may consider the Borrower’s current income as Effective

Income if it can verify and document:

• that the Borrower has been employed in the current line of work for at least six months at the time of case number assignment; and
• a two-year work history prior to the absence from employment using standard or alternative employment verification.

Job Gap—The application will call for you to document your last two years of employment history. If you have had several jobs, or job gaps of more than 6 months, you will need to document why you were off work and why you made the changes in your job. The underwriter is looking for stability in your pay and job. If you were in school recently, then the underwrite may want to see transcripts to verify this.

Kentucky FHA Mortgage Program

The FHA Program does not technically have an minimum employment history requirement but lenders are required to verify applicants' employment history for the prior two years
Applicants are required to explain any employment gaps of at least one month
Explainable employment gaps of six months or more are also permitted

Self-employed borrowers are typically required to demonstrate a two year job history
A self-employed job history of between one and two years is permitted if the applicant was previously employed in a similar line of work for at least two years
A combination of one year of employment in a similar field plus one year of education or training in that field is also permitted for self-employed borrowers

An uninterrupted two year history of part-time employment is typically required although part-time work history of less than two years may be considered as long as the lender determines that the work is likely to continue
Income from seasonal employment is also permitted as long as the applicant has a two year work history and expects to be rehired for future seasons

A two year employment history is required for bonus, commission or overtime income to be considered
An employment history of less than two years is allowed if the lender justifies and documents the reason for including the income
Lenders are also required to explain any significant declines in bonus, commission or overtime income
Significant fluctuations in bonus, commission or overtime income may require the lender to use an average period of longer than two years to calculate the applicant's income

Job History and Income Requirements for a Kentucky Mortgage Loan Approval for a FHA, VA, USDA and Conventional Mortgage Loan

 

Job History and Income Requirements

Kentucky Government Mortgage FHA, VA, USDA and Fannie Mae  Mortgage Home Loan Job History & Income Requirement Breakdown