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Introduction
This topic contains information on base pay (salary and hourly), bonus, and overtime income, including:
- Verification of Base Pay, Bonus, and Overtime Income
- Base Income Calculation Guidelines
- Military Income
Verification of Base Pay, Bonus, and Overtime Income
The following table provides verification requirements for base pay, bonus, and overtime income:
| ✓ | Verification of Base Pay, Bonus, and Overtime Income |
|---|---|
| A minimum history of two years of employment income is recommended. However, income that has been received for a shorter period of time may be considered as acceptable income, as long as the borrower’s employment profile demonstrates that there are positive factors to reasonably offset the shorter income history. Borrowers relying on overtime or bonus income for qualifying purposes must have a history of no less than 12 months to be considered stable. | |
| Base Pay (Salary and Hourly): Obtain the following documents:
| |
| Bonus or Overtime: Obtain the following documents:
| |
| SeeB3-3.1-01, General Income InformationB3-3.1-01, General Income Information, for additional information on calculating variable income (applies to hourly paid employees with fluctuating hours and bonus and overtime). | |
| If the borrower has recently changed positions with theiremployer, determine the effect of the change on the borrower’s eligibility and opportunity to receive bonus or overtime pay in the future. | |
| If a borrower who has historically been employed on a part-time basis indicates that they arenowworking full-time, obtain written confirmation from the borrower’s employer. | |
| A verbal VOE is required from each employer. SeeB3-3.1-07, Verbal Verification of EmploymentB3-3.1-07, Verbal Verification of Employment, for specific requirements. | |
| SeeB3-3.1-02, Standards for Employment DocumentationB3-3.1-02, Standards for Employment Documentation, for additional information about verifying employment income. |
Base Income Calculation Guidelines
After the applicable income documentation has been obtained, the lender must calculate the borrower’s eligible qualifying base income. The following table provides guidance for standard employment documentation:
| How Often Paid | How to Determine Monthly Income |
|---|---|
| Annually | Annual gross pay / 12 months |
| Monthly | Use monthly gross payment amount |
| Twice Monthly | Twice monthly gross pay x 2 pay periods |
| Biweekly | (Biweekly gross pay x 26 pay periods) / 12 months |
| Weekly | (Weekly gross pay x 52 pay periods) / 12 months |
| Hourly | (Hourly gross pay x average # of hours worked per week x 52 weeks) / 12 months |
| All of the above calculations must be compared with the documented year-to-date base earnings (and past year earnings, if applicable) to determine if the income amount appears to be consistent. SeeB3-3.1-01, General Income InformationB3-3.1-01, General Income Information, for additional information about variable income (bonus and overtime). | |
Military Income
Military personnel may be entitled to different types of pay in addition to their base pay. Flight or hazard pay, rations, clothing allowance, quarters’ allowance, and proficiency pay are acceptable sources of stable income, as long as the lender can establish that the particular source of income will continue to be received in the future. To verify military base pay and entitlements, the lender must obtain the borrower's most recent Leave and Earnings Statement (LES).
Income paid to military reservists while they are satisfying their reserve obligations also is acceptable if it satisfies the same stability and continuity tests applied to secondary employment.
Recent Related Announcements
The table below provides references to recently issued Announcements that are related to this topic.
| Announcements | Issue Date |
|---|---|
| Announcement SEL-2021-10 | November 03, 2021 |
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