General Income Documentation Requirements
When you apply for a home loan through Desktop Underwriter (DU), the system will tell you what documents you need to prove your income. However, the documents DU asks for might not always be enough to show how stable your income is. If a lender thinks more documents are needed or can’t tell if your income is reliable based on what’s provided, they may ignore the income you reported and ask you to resubmit your loan application to DU.
For people getting a mortgage, the paperwork requirements to prove income and employment are consistent, whether the loan processing is done manually or through DU. This means documents like paystubs, W-2 forms, and tax returns need to meet the same standards, no matter how your loan is being processed. DU has specific guidelines for various income types, which are detailed in other sections of the Fannie Mae Selling Guide.
It’s important to only include actual employer details in the loan application’s employment section. Do not list “retired” or “homemaker” as current employment.
Reduced Income Documentation Requirements for High LTV Refinance Loans
For loans with a high loan-to-value (LTV) ratio that are being refinanced, DU allows a simpler process with fewer documents needed to prove income. More details on this can be found in a specific part of the Fannie Mae Selling Guide.
Alternative Documentation Requirements for Income Validated by the DU Validation Service
If DU’s validation service confirms any part of your loan file, DU will let you know what documents are required. These requirements may be different from the standard guidelines.
Base Pay (Salary or Hourly) Income
For those earning a salary or hourly wage, DU needs:
– A completed Verification of Employment form.
– The most recent paystub and W-2 forms from the last year.
– For military income, the most recent Leave and Earnings Statement.
Bonus and Overtime Income
If you earn bonus or overtime pay, DU needs:
– A completed Verification of Employment form.
– Your most recent paystub and W-2 forms from the last two years.
Commission Income
For commission-based income, DU requires:
– A completed Verification of Employment form.
– Your most recent paystub and W-2 forms from the last two years.
Secondary Employment Income (Second Job and Multiple Jobs)
If you have a second job that’s not self-employment, you’ll need to provide your most recent paystub and W-2 forms from the last two years.
Self-Employment Income
Self-employed borrowers must indicate their ownership percentage in the loan application. If you own 25% or more of the business, or if the self-employed box is checked without specifying ownership percentage, DU will consider you self-employed. The income you report should be your net income after expenses if you have a significant ownership stake. If you own less than 25%, you’ll list your income as gross monthly income.
For self-employed borrowers, DU typically requires two years of personal and business tax returns. However, there are exceptions where business tax returns might not be needed, unless the business is a corporation, S corporation, LLC, or partnership. Under certain conditions, even this requirement can be waived.
If you’ve been self-employed for at least five years, as indicated by the loan application, DU might only ask for one year of personal tax returns. If any self-employed business started less than five years ago, two years of personal tax returns will be required. DU will also specify whether one or two years of business tax returns are needed based on the business’s age.
For more guidelines on self-employed income, refer to another section of the Fannie Mae Selling Guide.
Verbal Verification of Employment
A verbal verification of employment (VOE) is needed for each job listed. For more details on this requirement, see the relevant part of the Fannie Mae Selling Guide.
Other Income
All other types of income must be reported in the loan application. DU can handle various income types, but any income not specified should be listed as “Other.”
For eligibility and verification of different income sources, refer to specific sections of the Fannie Mae Selling Guide.
Temporary Leave Income
If you’re on temporary leave and using this income for your mortgage application, you must follow specific guidelines. If returning to work by the first mortgage payment, your regular income can be used. If not returning by then but can still qualify with temporary leave income, that income (or the regular income if it’s lesser) should be reported in DU according to specific rules.
If your temporary leave income is less and needs to be supplemented with liquid reserves, certain steps must be followed to ensure the reserves aren’t counted twice in your application.
Nontaxable Income
DU doesn’t specifically message about using adjusted gross income for nontaxable income. See another section of the Fannie Mae Selling Guide for how to adjust nontaxable income for qualifying purposes. If the requirements are not met, the income must be adjusted downwards.
Certain loan systems automatically calculate adjusted gross income when nontaxable income is entered.
References
For more details, visit Income and Employment Documentation for DU of the Fannie Mae Selling Guide.