Conventional Income FAQs Flashcards
Q: Can we use business assets to close if the borrower’s self-employed business income is not being used to qualify?
A: Yes, this acceptable for both Fannie & Freddie. We just need to verify that the borrower is owner of the asset account & business. We do not need to do a cash flow analysis of the business.
Q: Can a borrower utilize crowd funding (gofundme.com, etc.) as a source of down payment?
A: No, this is not an acceptable source of funds to utilize for our transaction.
Q: Is cryptocurrency / bitcoin allowable?
A: Bitcoins and other types of digital currency are not eligible assets because the statements used to document these assets do not provide the information required in Section B3-4.2-01 of FNMA’s Selling Guide, and they are not valued in terms of US currency.
In order for the proceeds from a Bitcoin or other digital currency exchange to be considered as an eligible asset, it must be converted to US currency and deposited into an eligible account where the account statement indicates borrower ownership and all required information is provided.
The source of a large deposit may be from Bitcoins or another digital currency, provided there is documentation to show the funds coming from the digital currency account that was owned by the borrower.
Q: If there is a large deposit in a joint account and the deposit came from a source that is only in the non-borrowing account owner’s name, is the treated as a gift or large deposit?
A:
FNMA: Since the original funds were not the borrower’s funds, they would be considered a gift and must be treated as such with gift letters, copies of checks and input as a gift in AUS.
FHLMC: Will allow these funds to be treated as borrower’s own funds provided we document the source of the large deposit.
Q: Are people that are employed by temp agencies eligible for conventional financing?
A: Typically, Borrowers should be employed by the temp agency for a full 2 years in order to deem the income as stable. If borrower has been employed by temp agency less than 2 years but more than 1 year, an exception may be possible with FNMA as long as the borrower’s loan application demonstrates that there are positive factors that reasonably offset the shorter income history and we can document the previous income/employment was in the same field prior to working for temp agency.
Q: On a FNMA Rate/Term refi transaction, what if borrower is not on title at time of application? Can the borrower be added to title at closing?
A: FNMA only permits borrowers who are not yet in title to complete a rate/term refinance provided lender can get a satisfactory 12-month mortgage history to meet AUS requirements. The borrower may be added to title after loan application but before closing as UW must ensure the borrower is the owner of record. A case-by-case exception to add to title at closing may be granted for legal purposes only.
Q: Borrower just started receiving Social Security Retirement income this year, can I gross it up?
Fannie: No. To gross up Social Security income, agencies require a copy of the complete federal individual income tax return for the most recent one-year period or other documentation evidencing that the income, or a portion of the income, is tax exempt.
Freddie: Social Security retirement income can be grossed up by 15% of the income without obtaining any additional documentation supporting that this portion of the income is tax exempt (see 5305.2).
Q: Do we have to consider secondary self-employed income/loss if it is not utilized to qualify?
A: Neither Fannie nor Freddie require consideration of this income/loss when a borrower is qualified using only income that is not derived from self-employment and self-employment is a secondary and separate source of income (or loss). Examples of income not derived from self-employment include salary and retirement income
Q. If my Borrower is qualifying on retirement distributions do we need to show current receipt if the distribution was just set up?
FANNIE: Requires a distribution letter that confirms the amount and frequency of the distribution along with current statement to support 3 year continuance. Borrower must receive their first distribution prior to the first payment date of the loan.
FREDDIE: Requires a distribution letter that confirms the amount and frequency of the distribution along with current statement to support 3 year continuance. Borrower must receive their first distribution prior to the execution of the Note.
Q. Will GRI let a borrower close and then start a new job?
A: This is permitted as long as employed start date as reflected on employment contract date is within 90 days of the note date and all employment contract contingencies are cleared prior to closing.
NOTE: A confirmation letter from HR is acceptable to support that contingencies have been met; such as, but not limited to, drug screening and background checks.
Refer to Fannie and Freddie guides for additional requirements.
GR does not have the ability to delay delivery of a loan; therefore, Option 1 under FNMA guidelines and Option 2 under FHLMC guidelines are not available options.
Q: How do we treat income derived from an executed land contract on conventional loans?
A: Both Fannie and Freddie treat Land contract income as Notes receivable income. You must document a 12-month history of receipt as proof it will continue for a minimum of 3 years.
Q. Can gambling income be utilized as income to qualify?
A: Yes, both FNMA and FHLMC will permit.
If gambling income is reported on schedule C
3 years of 1040s are required plus
CPA letter regarding existence and continuance
If gambling income is reported on line 21
Income must be deemed stable
Document YTD earnings
3 years of tax returns reflecting stable receipt of gambling earnings
Document YTD winnings
Q: If AUS allows for a Full Verification of Employment/Income, can we use a Full VOE in lieu of collecting paystubs and W2s on loans with no income validation?
A: Utilization of Full VOE in lieu of paystubs and W2s can only be used when the FULL VOE is an Automated Work Number print up or any other Third Party Verification Service. A Handwritten Full VOE is not acceptable.
NOTE: Third party verification services are not acceptable on manually underwritten loans.
Q: Is a borrower employed by a family-owned business eligible if they have not earned W2 income from this business in the prior tax year?
A: No, Fannie and Freddie require previous reported W2 earnings from the family-owned business for income eligibility. When employed by a family business:
Fannie requires prior two years’ of tax returns. At a minimum, the prior year’s tax return must support the receipt of reported W2 earnings from the business and confirm that the borrower has no ownership in the business
Freddie requires prior year’s tax returns. The tax return must support the receipt of reported W2 earnings from the business and confirm that the borrower has no ownership in the business
NOTE: The requirement for W2 earnings does not have a minimum length of receipt of income in the prior tax year. The borrower must have been employed, earned, and reported W2 income in the prior tax year from the same family-owned business that the borrower is currently employed at.
Q: Do we need a copy of the security deposit check or 1st month’s rent from a departing residence when using a new lease to qualify?
A: Not unless the tenant is related to our borrower and then we need to support the validity of the lease.
