The updated income assessment verification requirements outlined in this “Section 5.3 Income Assessment (For Mortgage Loan Applications on or after September 1, 2026)”, are effective for all mortgage loan applications dated on or after September 1, 2026. PFIs are encouraged to evaluate Borrowers income in accordance to the requirements in this Section 5.3 prior to the effective date, but are required do so for all mortgage loan applications received on or after September 1, 2026.
PFIs with mortgage loan applications dated prior to September 1, 2026, who have not yet implemented the updated income assessment requirements outlined in this section must only follow all of the income assessment requirements in “Section 5.3. Income Assessment (Effective for Mortgage Loan Applications prior to September 1, 2026)”. Income assessment requirements from each version of Section 5.3 may not be combined.
To ensure QM Status, PFIs are required to verify the Borrower’s current or reasonably expected income, pursuant to TILA/Regulation Z (including 12 CFR 1026.43). The verification requirements outlined in this section and this Guide are intended to meet TILA/Regulation Z and its official commentary which permits Originators to rely on GSE validation standards to provide reasonably reliable evidence (specifically Fannie Mae Single Family Selling Guide Sections B3-3). Any deviations in this Guide from the GSE’s verification standards were only intended to impose more restrictive requirements, and not intend to be more permissive. To the extent the guidance for verification requirements in this MPF Traditional Selling Guide contradict what is provided in aforementioned sections of Fannie Mae’s Single Family Selling Guide, the more restrictive policy will supersede. The referenced Fannie Mae Selling Guide sections should only be used for verification purposes. Nothing in the Fannie Mae guides supersede a PFI’s obligation to considering Borrower’s current or reasonably expected income as provided for in TILA/Regulation Z (including 12 CFR 1026.43), and this is the stated intent for verification standards only, as a result, the underwriting and eligibility guidelines of the MPF Guides apply to MPF Traditional mortgage loans.
5.3.15.3.1 General Income Information (6/3/26)
Borrowers must be qualified using income that the PFI can reasonably determine is stable and likely to continue. PFIs are required to verify only the income used to qualify the Borrower in accordance with MPF Selling Guide requirements, unless a specific mortgage program or product requires verification of all income earned. Income not used for qualification purposes is not required to be verified.
Income calculation resources are available on the MPF Quality Control Resource Page.
5.3.1.15.3.1.1 Stable and Predictable Income (6/3/26)
A stable and predictable flow of income is a foundational element in loan underwriting, and documenting that the income is stable, has a documented history of receipt, and is reasonably expected to continue.
5.3.1.25.3.1.2 Continuance of Income (6/3/26)
Borrowers must be qualified with income the Originator can reasonably expect to continue for the foreseeable future. The Originator must evaluate the likelihood of continuance based on the nature of the income and supporting documentation.
• If the income does not have a defined expiration date and the applicable history of receipt of the income is documented (per the specific income type), the Originator may conclude that the income is likely to continue and the Originator is not expected to obtain additional documentation, unless there is information to the contrary.
• If the income source does have a defined expiration date or is dependent on the depletion of an asset account or other limited benefit, the Originator must document that the income is expected to continue for at least three years from the Note date. Additionally, when an asset account is the sole or majority source of qualifying income, the Originator must assess the borrower’s ability to continue repaying the loan once the income source expires or the asset is depleted prior to loan maturity.
• If the Originator is notified that the borrower is transitioning to a lower pay structure, for example due to pending retirement or a new job, the Originator must use the lower income amount in qualifying and must determine that the lower amount is stable and predictable.
5.3.1.35.3.1.3 Verification of Income for Non-U.S. Citizen Borrowers (6/3/26)
Borrowers who are not U.S. citizens must meet the same employment and income verification requirements that are required for borrowers who are U.S. citizens, regardless of the type or source of income. For information on a borrower earning foreign income, see Section 5.3.4.1 Standards for Employment-Related Income. For non-U.S. citizen borrower eligibility, see Section 3.1.7, Non–U.S. Citizen.
5.3.1.45.3.1.4 Non-Occupant Borrower Income (6/3/26)
Income from a non-occupant borrower may be considered in qualifying provided the income meets the same standards as required for occupying borrowers.
This income can offset certain weaknesses that may be in the occupant borrower’s loan application, such as limited income, financial reserves, or limited credit history. However, it may not be used to offset significant or recent instances of major derogatory credit in the occupant borrower’s credit history. The occupant borrower must still reasonably demonstrate a willingness to make the mortgage payments and maintain homeownership.
If the income from a non-occupant Borrower is used for qualifying, subject to the LTV requirements in Section 3.1.4 Non-Occupant Co-Borrower.
5.3.1.55.3.1.5 Nontaxable Income (6/3/26)
The Originator should give special consideration to sources of income that may be nontaxable. The Originator must verify that the particular source of income is nontaxable, using documentation such as award letters, policy agreements, account statements, tax returns or any other documents that address the nontaxable status of the income. Any exceptions to the required documentation can be found within the details of each specific income type.
If the income is verified to be nontaxable, and the income and its tax-exempt status are likely to continue, the Originator should develop an “adjusted gross income” for the borrower by adding an amount equivalent to 25% of the nontaxable income to the borrower’s income.
If the actual amount of federal and state taxes that would generally be paid by a wage earner in a similar tax bracket is more than 25% of the borrower’s nontaxable income, the Originator may use that amount to develop the adjusted gross income, which should be used in calculating the borrower’s qualifying ratio.
5.3.1.65.3.1.6 Income Paid in Virtual Currency (6/3/26)
Any income paid to or earned by the borrower in the form of virtual currency, such as cryptocurrencies, is not eligible to be used to qualify for the mortgage loan.
5.3.25.3.2 Tax Return and Transcript Documentation Requirements (6/3/26)
Tax returns and transcripts can be used to calculate and verify certain types of borrower income.
When required, personal federal income tax returns must be copies of the original returns that were filed with the IRs. All supporting schedules must be included. Alternatively, the Originator may obtain applicable transcripts of federal income tax returns.
“Most recent” tax return is defined as the last return scheduled to have been filed with the IRS. See Section 5.1.4, Allowable Age of Federal Income Tax Returns.
Each tax return must be signed by the borrower unless the Originator has obtained one of the following signature alternatives:
• documentation confirming that the tax returns were filed electronically,
• a completed IRS Form 4506–C (signed by the borrower) for the year in question, or
• IRS transcripts that validate the tax return.
5.3.2.15.3.2.1 Using Tax Return Transcripts in Lieu of Tax Returns (6/3/26)
When federal income tax information is used to document income for qualifying purposes, the Originator may obtain transcripts of the applicable federal income tax documents. For example, the Originator may obtain Tax Return Transcripts for Form 1040 or Wage and Income Transcripts for W-2s, 1098s, and 1099s.
In certain instances, tax transcripts may not provide sufficient detail to support the qualifying income. In those cases, the Originator must obtain copies of the actual returns, schedules, or forms. For example, the Originator must obtain copies of Schedules B through F, Schedule K-1, or business returns, unless:
• the income reflected on the applicable schedule transcripts is positive, and
• the income supported by that schedule or form is not being used for qualifying.
5.3.2.25.3.2.2 Use of IRS Form 4506C to Verify Borrower Documentation (6/3/26)
IRS Form 4506-C can be used to obtain tax transcripts for up to four years or tax periods and is valid for 120 days after completion (including signature) by the borrower. The PFI must have each borrower whose income is used in qualifying (regardless of income source) complete and sign a separate IRS Form 4506-C at or before closing. An alternative form or process is also acceptable if it authorizes the release of comparable tax information from the IRS. PFIs are required to provide express consent from the taxpayers as permitted by applicable law, this includes the Taxpayer First Act.
Multiple IRS Form 4506-Cs may be required depending on the number and type of transcripts required to verify the income because only one tax form can be requested per each IRS Form 4506-C. For example, a self-employed borrower whose income documentation includes two years each of personal and business tax returns must complete:
- one IRS Form 4506-C to request transcript of the personal tax returns, and
- a separate IRS Form 4506-C to request transcripts of the business returns (e.g., Form 1065, Form 1120, Form 1120S).
The PFI must complete IRS Form 4506-C as follows:
- Enter the PFIs name (or the name of the servicer, if servicing will be transferred within 120 days of the taxpayer signing the form) as the recipient of the tax documents.
- Indicate the year(s) or tax period(s) for which the borrower’s income was or will be used in underwriting the loan.
- Ensure the form(s) is dated on the same day the borrower signs it (or ascertain that the borrower dates the form when they sign it).
Note: The borrower should not be required to sign an IRS authorization form before all items on the form, including the transcript being requested, the years/tax periods, and the date, have been completed.
Note: Borrowers with income from Puerto Rico must use Modelo SC 2907 (Solicitud De Copia De Planilla, Relevo De Herencia Y De Donacion) rather than IRS Form 4506-C. Applicable forms or processes for eligible borrowers filing tax returns in other U.S. territories must be adhered to and obtained when required.
If tax transcripts are not obtained during the origination process, the PFI is required to obtain the tax transcripts from the IRS (or designee) using the Form 4506-C or an acceptable alternative IRS form signed at Closing for all Mortgage Loans the MPF Program selects for a post-Closing QC review (including targeted reviews as applicable), when tax returns were required and relied upon in underwriting to support the borrower's income. If the PFI receives the transcript(s) prior to closing, the transcript(s) must be used to verify the income documentation provided by the borrower and used in the underwriting process. In this case, because the Originator has already received the tax transcript(s), an additional signed IRS Form 4506-C is not required to be signed by the borrower.
When tax transcripts are obtained prior to Closing, the level of income documentation selected for Loan Presentment should be: Documentation Type 20 = “24 months or more income/employment verification & tax transcripts acquired using IRS Form 4506-C” (See OG3 Instructions for additional information to complete a Loan Presentment). In order to use this Documentation Type Code, the transcripts must validate the income documentation used to calculate the Borrower’s income.
5.3.2.35.3.2.3 Retaining Tax Documents (6/3/26)
PFIs must retain all tax documents, including either the IRS Form 4506-C or the tax transcript(s) and any subsequent explanation or documentation of discrepancies in the mortgage loan file for QC review.
5.3.35.3.3 Verbal Verification of Employment (6/3/26)
PFIs must obtain a verbal verification of employment (verbal VOE) for each borrower using employment or self- employment income to qualify. The verbal VOE must be obtained within 10 business days prior to the Note date for employment income, and within 120 calendar days prior to the Note date for self-employment income. The verbal VOE requirement is intended to help the PFI mitigate risk by confirming, as late in the process as possible, that the borrower remains employed as disclosed on the loan application. A change in the borrower’s employment status could have a significant impact on that borrower’s capacity to repay the mortgage loan and must be fully reevaluated.
Alternatively, the PFI may obtain the verbal VOE after closing, confirming that the Borrower remains employed as originally disclosed on the loan application, up to the time of loan delivery. If the verbal VOE (or allowable alternative) cannot be obtained prior to delivery, the mortgage loan is ineligible for delivery to the MPF Program.
The following table describes the requirements for a verbal VOE and allowable alternatives.
| Type of Income | Verbal VOE Requirements |
| Hourly, Salary, and Commission Income (Non-Military) | PFIs must use the Exhibit R: Verbal Verification of Employment or an equivalent to document the verbal verification provided it includes all of the following requirements: - The PFI must independently obtain a phone number and, if possible, an address for the Borrower's employer. This can be accomplished by using a telephone book, the Internet, directory assistance, or by contacting the applicable licensing bureau.
- The PFI must contact the employer verbally and confirm the Borrower's current employment status within 10 business days prior to the Note date.
Note: If the employer confirms the Borrower is currently on temporary leave, the PFI must consider the Borrower “employed.” See Section 5.3.6 Other Sources of Income, for details on temporary leave. - The conversation must be documented. It should include the following:
- name and title of the person who confirmed the employment for the PFI,
- name and title of the person who completed the verification for the employer,
- date of the call, and
- the source of the phone number.
Alternative Methods to Verify Employment: - The PFI can obtain
- a written verification confirming the Borrower’s current employment status within 10 business days prior to the Note date. The written documentation must include the name and title of the person who completed the verification for the employer.
- PFIs can obtain an email exchange with the Borrower's employer from the employer's work email address within 10 business days prior to the Note date.
- The PFI must conduct additional due diligence to confirm that the email address for the employer is accurate. Examples of due diligence include, but are not limited to, searches of domain name on employer website (review for match to employer email address), employer directory on the internet, or other professional networking or business profile websites.
- The email exchange must include Borrower's name and employer's name; name, title, and work email address of the individual contacted at the employer; date of contact; and Borrower's current employment status.
- Within 15 business days prior to the Note date, the borrower can provide either
- the most recent available paystub as of that date that, meets the requirements in Section 5.3.4.1 Standards for Employment Documentation; reflects information for the most recent expected pay period based on the date it is provided and the borrower's pay cadence; and does not include any information indicating the borrower may not be actively employed.
- Bank statements dated no earlier than 15 business days prior to the Note date that
- meet the requirements in Section 5.8.1 Verification of Deposits and Assets,
- reflects information for the most recent expected pay period based on the date of the statement and the borrower's pay cadence, and
- does not include any information indicating the borrower may not be actively employed.
- If the Borrower is a union member who works in an occupation that results in a series of short-term job assignments (such as a skilled construction worker, longshoreman, or stagehand), and the union facilitates the Borrower’s placement in each assignment, the PFI may obtain the verbal VOE from the union.
- If the employer uses a third-party employment verification vendor, the PFI must obtain written verification from the vendor of the Borrower’s current employment status within the same time frame as the verbal VOE requirements.
Note: Because third-party vendor databases are typically updated monthly, the verification must evidence that the information in the vendor's database was no more than 35 days old as of the Note date. |
| Military Personnel | If the Borrower is in the military, in lieu of a verbal or written VOE, the PFI must obtain either - a military Leave and Earnings Statement dated within 120 calendar days prior to the Note date, or
- a verification of employment through the Defense Manpower Data Center.
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| Self-Employed Income | The PFI must verify the existence of the Borrower's business within 120 calendar days prior to the Note date - from a third party, such as a CPA, regulatory agency, or the applicable licensing bureau, if possible; or
- by verifying a phone listing and address for the Borrower's business using a telephone book, the internet, or directory assistance.
The PFI must document the source of the information obtained and the name and title of the PFIs employee who obtained the information. |
5.3.3.15.3.3.1 Base Income Calculation Guidelines (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
After the applicable income documentation has been obtained, the PFI 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. |
5.3.3.25.3.3.2 Military Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
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 PFI can establish that the particular source of income will continue to be received in the future. To verify military base pay and entitlements, the PFI 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.
5.3.45.3.4 Requirements for Employment-Related Income (6/3/26)
5.3.4.15.3.4.1 Standards for Employment and Income Documentation (6/3/26)
The PFI must verify employment income for all borrowers whose income is used to qualify for the mortgage loan. This verification can be provided by the borrower, by the borrower’s employer, or by a third-party employment verification vendor. A year end paystub reflecting earnings from the entire year is acceptable in lieu of the W-2.
5.3.4.25.3.4.2 Documentation Provided by the Borrower (6/3/26)
The following table provides requirements for documentation provided by the Borrower.
| ü | Requirements – Paystubs and W-2s |
|---|
| | The most recent paystub must be dated no earlier than 30 days prior to the initial loan application date and it must include all year-to-date earnings. Additionally, the most recent paystub must include sufficient information to appropriately calculate income; otherwise, additional documentation must be obtained.
Paystubs must comply with the allowable age of documentation requirements of this Guide. See Section 5.1.3 Age of Documents. |
| | IRS W-2 forms must cover the most recent one- or two-year period, based on the documentation requirements for the particular income type, and must clearly identify the Borrower as the employee. ”Most recent” W-2 is defined as the W-2 for the calendar year prior to the current calendar year. Alternative documentation, such as an IRS Wage and Income (W-2) Transcript, a written Request for Verification of Employment (PFIs may use Fannie Mae’s Form 1005 or Form 1005(S)) (see below) or the final year-to-date paystub, may be used as long as adequate information is provided. |
| | Documents must be computer-generated or typed by the Borrower’s employer(s), although paystubs that the Borrower downloads from the Internet are also acceptable. Documents must clearly identify the employer’s name and source of information. |
| | The information must be complete and legible. |
| | The original source of the information must be a third party, such as the Borrower's human resources department, personnel office, payroll department, company's payroll vendor, or supervisor. |
For tax return requirements, see Section 5.3.3 Tax Return and Transcript Documentation Requirements.
5.3.4.35.3.4.3 Documentation Provided by the Borrower's Employer (6/3/26)
PFIs may use Fannie Mae’s Request for Verification of Employment (Form 1005) or its equivalent to document employment and income. The date of the completed form must comply with Section 5.1.3 Age of Documents and 5.14 Allowable Age of Federal Income Tax Returns requirements of this Guide.
The information on the Form 1005 must be legible.
The following fields on the form are optional:
| Field # | Title of Optional Field |
|---|
| 11 | Probability of continued employment |
| 14 | If overtime or bonus is applicable, is its continuance likely? |
| 16 | Date of applicant’s next pay increase |
| 17 | Projected amount of next pay increase |
| 18 | Date of applicant’s last pay increase |
| 19 | Amount of last pay increase |
| 24 | Reason for leaving (Part III — Verification of Previous Employment) |
The remaining fields on the form must be completed as applicable to the Borrower.
When the Borrower authorizes the PFI to obtain verifications of employment and income directly from the employer, the PFI must have the Borrower sign Form 1005 or its equivalent.
Alternatively, the PFI may have the applicant sign a signature authorization form, which gives the Originator blanket authorization to request the information it needs to evaluate the applicant’s creditworthiness. See Section 5.1.7 Blanket Authorization Form, for additional information.
5.3.4.45.3.4.4 Documentation Provided by a Third-Party Employment Verification Vendor (6/3/26)
The PFI may receive employment and income verification directly from a third-party employment verification vendor. These verifications are acceptable as long as:
- the Borrower provided proper authorization for the PFI to use this verification method,
- the date of the completed verification is in compliance with Age of Document requirements of this Guide,
- the PFI has determined that the vendor has made provisions to comply with reasonable quality control requests from both the PFI and any subsequent mortgagee, and
- the PFI understands it will be held accountable for the integrity of the information obtained from this source.
If necessary, the PFI must supplement these verifications by obtaining any missing information from the Borrower or his or her employer.
5.3.4.55.3.4.5 Standards for Employment-Related Income (6/3/26)
| Criteria | Requirements |
| Employment | Originators must evaluate the Borrower’s work history to determine whether it reflects a reliable pattern of employment over the most recent two years. A shorter employment history may be considered eligible for qualifying purposes if the Borrower’s employment profile includes positive factors that reasonably offset the shorter employment history. |
| Multiple Jobs | Borrowers who are qualifying with income from multiple employment sources at the same time, including self-employment, must meet the requirements for each specific income type, as well as the following requirements:
- A two-year history for each income source is recommended; however, income that has been received for a shorter period of time (but, no less than 12 months) may be considered as acceptable income, as long as there are positive factors to reasonably offset the shorter income history.
- When the borrower’s employment history includes different employers, in no instance may the borrower have any gap in employment greater than one month in the most recent 12-month period, unless the employment is considered seasonal income (subject to the requirements in Section 5.3.5.8 Seasonal Income).
Note: When one of the income sources is from self-employment (borrowers with a 25% or greater ownership interest in the business), self-employed documentation and eligibility requirements apply. See Section 5.4.1, Underwriting Factors and Documentation for a Self-Employed Borrower for requirements. |
| Employment Gaps | Borrowers with employment gaps during the most recent 12 months may appear to have unstable employment. Originators must carefully analyze the borrower’s current employment to ensure that it is likely to continue. |
| Job Changes | Borrowers who change jobs frequently, but who are nevertheless able to earn consistent and predictable income, are considered to have a reliable flow of income for qualifying purposes. |
| Pay Raises | Future increases in pay from the borrower's current employer may be included as qualifying income when the following requirements are met: - The income is fixed base only.
- The transaction is a purchase money or limited cash-out refinance transaction.
- The increase must take effect no later than 60 days after the Note date.
- The increase is fully verified with the employer using Form 1005, Request for Verification of Employment or other documentation directly from the employer that provides the terms of the future pay increase.
- Borrower must not be employed by a family member or interested party.
Note: Borrowers who are qualifying using income from a future employer must meet the requirements in Section 5.3.7.3 Employment Offers or Contracts. |
| Employment by Family or Interested Party | Borrowers who are employed by a family member or interested party must meet the requirements for the specific income type(s) outlined in the respective sections throughout the Guide, and the following: - Borrower must have been employed by the business for at least the 12 months prior to the application date.
- The PFI must obtain copies of the most recent year’s signed federal income tax returns that reflect borrower has less than 25% ownership in the business owned by the family member or interested party. If the borrower has 25% or more ownership, the borrower must be qualified as self-employed.
- The borrower’s qualifying income must be consistent with the most recent year’s earnings, which must be documented with a W-2 or tax returns.
|
| Foreign Income | Foreign income is earned by a borrower who is employed by a foreign corporation or a foreign government and is paid in foreign currency. Borrowers using foreign income to qualify must meet the following requirements: - Copies of signed federal income tax returns for the most recent two years that include foreign employment-related income.
- The PFI must satisfy requirements based on the source and type of income as required in the Guide.
- All documents of a foreign origin must be completed in English, or the Originator must provide a translation, attached to each document, and ensure the translation is complete and accurate.
- All income must be translated to U.S. dollars.
Note: If the borrower is not a U.S. citizens, refer to Section 3.1.7, Non–U.S. Citizen for additional information. |
5.3.55.3.5 Sources of Employment-Related Income (6/3/26)
5.3.5.15.3.5.1 Base Income (6/3/26)
Base income is received on a regular basis, independent of additional earnings such as overtime or bonuses. It is categorized as either fixed or variable:
- Fixed base income refers to a set salary or fixed hourly rate with guaranteed minimum hours. These hours may have minor variances from pay period to pay period which does not alone preclude the borrower’s income from being considered fixed base income.
- Variable base income refers to a fixed hourly rate with fluctuating hours, or an hourly rate that varies.
Base Income
The following table provides requirements for fixed base income:
| Criteria | Requirements |
| Documentation | The PFI must obtain - a completed Request for Verification of Employment (Form 1005), or
- the most recent paystub and most recent W-2.
Additionally, a verbal VOE is required. See Section 5.3.5, Verbal Verification of Employment, for specific requirements. |
| Income History | A minimum history is not required for inclusion as qualifying income. |
| Income Continuance | The PFI is not required to verify continuance unless they have reason to believe the income may not continue. |
| Determination of Qualifying Income | The PFI must calculate fixed base income as shown in the following table: | 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 |
The borrower's qualifying income must be consistent with year-to-date base earnings. If year-to-date income does not reflect at least 30 days' of earnings, the PFI must confirm qualifying income is consistent with the prior year's earnings. |
Variable Base Income
The following table provides requirements for variable base income.
| Criteria | Requirements |
| Documentation | The PFI must obtain - a completed Request for Verification of Employment (Form 1005), or
- the most recent paystub and most recent W-2.
Additionally, a verbal VOE is required. See B3-3.1-04, Verbal Verification of Employment, for specific requirements. |
| Income History | A minimum 12-month history of receiving variable income is required. |
| Income Continuance | The PFI is not required to verify continuance unless they have reason to believe the income may not continue. |
| Determination of Qualifying Income | The PFI must calculate income using one of the two methods below. 1. Average Income: Depending on the historical trend of the income, the Originator must calculate qualifying income as follows: - Stable or Increasing: Calculate an average income amount using year-to-date and previous year's earning. The calculation must include a minimum of 12 months' income.
- Decreasing: The Originator must confirm the current income level has stabilized after the decline; otherwise, the income is not eligible for qualifying. To calculate income, use the year-to-date income divided by months elapsed in the current year.
2. Average Hours: The PFI must multiply the average monthly hours (based on at least the most recent 12 months) by the current fixed hourly rate. Note: When a documented, non-recurring event outside the borrower's control temporarily prevented them from earning income, the PFI may exclude that period from the income calculation. The pay raise policy in Section 5.3.4.1 Standards for Employment-Related Income does not apply to variable income. Any pay raises for variable base income must be in place prior to closing. |
5.3.5.25.3.5.2 Bonus, Commission, Overtime, and Tip Income (6/3/26)
The following table provides requirements for overtime, bonus, commission and tip income:
| Criteria | Requirements |
| Documentation | The PFI must obtain - a completed Request for Verification of Employment ( Form 1005), or
- the most recent paystub and two years’ W-2s. Additionally, a verbal VOE is required.
See Section 5.3.3, Verbal Verification of Employment for specific requirements. Note: For tip income not reported by the employer, two years’ personal tax returns with IRS Form 4137 may be provided in lieu of a W-2. |
| Income History | A minimum two-year history is recommended; however, income received for a shorter period, but no less than 12 months, may be considered as acceptable if there are positive factors to reasonably offset the shorter income history. |
| Income Continuance | The PFI is not required to verify continuance unless they have reason to believe the income may not continue. |
| Determination of Qualifying Income | The PFI must determine the income frequency (for example, weekly, biweekly, monthly, quarterly, or annually) to accurately calculate the monthly income amount. Once the monthly year-to-date income amount is determined, it must be compared to the earnings from previous years. Depending on the historical trend of the income, the PFI must calculate qualifying income as follows: - Stable or Increasing: Calculate an average income amount using year-to date and previous year’s earnings, divided by the number of months included in the year-to-date paystub and W-2s. The calculation must include a minimum of 12 months’ income.
- Decreasing: The PFI must confirm the current income level has stabilized after the decline; otherwise, the income is not eligible for qualifying. To calculate income, use the year-to-date income divided by months elapsed since the income stabilized.
When bonus income is used for qualification, the PFI must calculate the monthly amount accurately for use in the trending analysis. For example, if a borrower receives an annual bonus on March 31st of each year, the bonus income should be annualized (divided by 12) to determine the appropriate monthly bonus amount. The PFI must also ensure that all supporting documentation in the file supports the income used in the qualification process. Note: When a documented, non-recurring event outside the borrower’s control temporarily prevented them from earning income, the PFI may exclude that period from the income calculation.
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5.3.5.35.3.5.3 Employment Offers or Contracts (6/3/26)
If the borrower is scheduled to begin new employment under the terms of an employment offer or contract, the PFI may deliver the loan in accordance with one of the options outlined below.
The following table provides requirements for employment offers or contracts.
| Eligibility | Option 1 Paystub Obtained Before Loan Delivery _________________________________________ The borrower must not be employed by a family member or by an interested party to the transaction. | Option 2 Paystub Not Obtained Prior to Delivery ________________________________________ This option is limited to loans that meet the following criteria: - purchase transaction,
- principal residence,
- one-unit property,
- the borrower must not be employed by a family member or by an interested party to the transaction, and
- the borrower is qualified using only fixed base income.
The borrower's start date must be no earlier than 30 days prior to the Note date OR no later than 90 days after the Note date. |
| Documentation | The PFI must obtain and review the borrower's fully executed offer or contract for future employment. The documentation must clearly identify: - the employer and the borrower,
- the terms of employment, including position, type and rate of pay, and start date. Prior to delivering the loan, the PFI must save the most recent paystub from the borrower (that includes sufficient information to support the qualifying income based on the offer or contract) in the loan file.
Additionally, a verbal VOE is required. See 5.3.5, Verbal Verification of Employment, for specific requirements. Alternatively, when the borrower's start date is on or after the note date, the PFI may obtain verification directly from the employer confirming all terms in the offer letter remain the same. | The PFI must obtain and review the borrower's fully executed and non-contingent offer or contact for future employment. The documentation must clearly identify: - the employer and the borrower, and
- the terms of employment, including position, type and rate of pay, and start date.
If conditions of employment exist, the PFI must confirm prior to closing that all conditions of employment are satisfied (either by verbal verification or written documentation). The PFI must note this confirmation in the loan file. For a union member who works in an occupation that results in a series of short-term job assignments (such as a skilled construction worker, longshoreman, or stagehand), the union may provide the executed employment offer or contract for future employment. Additionally, a verbal VOE is required. See 5.3.3, Verbal Verification of Employment, for specific requirements. Alternatively, when the borrower's start date is on or after the note date, the Originator may obtain verification directly from the employer confirming the employer confirming the terms in the offer letter remain the same. |
| Income Continuance | The Originator is not required to verify continuance unless they have reason to believe the income may not continue. | The Originator is not required to verify continuance unless they have reason to believe the income may not continue. |
| Reserve Requirements | N/A | The Originator must document one of the following: - six months' PITIA for the subject property; or
- financial resources sufficient to cover the monthly liabilities included in the DTI ratio, including the PITIA for the subject property, for the number of months between the note date and the employment start date, plus one. For calculation purposes, the Originator may consider any portion of a month as a full month.
Financial resources may include: - financial reserves, and
- current income, which refers to the net income that is currently being received by the borrower (or co-borrower), may or may not be used for qualifying, and may or may not continue after the borrower starts employment under the offer or contract.
For this purpose, the Originator may use the amount of income the borrower is expected to receive between the Note date and the employment start date. If the current income is not being used or is not eligible to be used for qualifying purposes, it can be documented by the Originator using income documentation, such as the most recent paystub. A verification of employment is not required. |
| Determination of Qualifying Income | The Originator must use the monthly income amount in the offer letter as qualifying income. | The Originator must use the monthly income amount in the offer letter as qualifying income. |
5.3.5.45.3.5.4 Housing (Parsonage) and Automobile Allowances (6/3/26)
The following table provides requirements for housing (parsonage) and automobile allowance income.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain · a completed Request for Verification of Employment (Form 1005), or
· the most recent paystub and most recent W-2. Additionally, a verbal VOE is required. See Section 5.3.3 Verbal Verification of Employment, for specific requirements. |
| Income History | A minimum 12-month history is required. |
| Income Continuance | The Originator is not required to verify continuance unless they have reason to believe the income may not continue. |
| Determination of Qualifying Income | The Originator must add the full amount of the allowance to the borrower's monthly income, and not use it as an offset of the corresponding liability. |
Note: The above requirements do not apply to military quarters' allowance. See Section 5.3.5.5 Military Income, for additional information.
5.3.5.55.3.5.5 Military Income (6/3/26)
The following table provides requirements for military income, including base pay and allowances.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain the borrower's most recent Leave and Earnings Statement (LES) dated within 120 days of the note date. Additionally, a verbal VOE is required. See 5.3.3, Verbal Verification of Employment, for specific requirements. |
| Income History | Active Duty: There is no set minimum history requirement for inclusion as qualifying income. National Guard/Reserves: A minimum 12-month history is required. |
| Income Continuance | Military personnel may be entitled to different types of pay ("allowances") in addition to their base pay, including but not limited to flight or hazard pay, rations, clothing allowance, quarters' allowance, and proficiency pay. The Originator must carefully examine allowances that a service member receives based on their location or the nature of their job duties. The Originator may include these allowances as qualifying income provided there is no indication that the income amount will be lowered, in which case the lower amount must be used for qualifying, or discontinued altogether. |
| Determination of Qualifying Income | The Originator may include the full amount of the borrower's monthly base pay and allowances as qualifying income. |
5.3.5.65.3.5.6 Mortgage Differential Payments Income (6/3/26)
Mortgage differential payments from a borrower's employer are intended to subsidize the borrower's mortgage payments by paying all or part of the interest differential between the borrower's past and current mortgage payments.
The following table provides requirements for mortgage differential payment income.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain written verification from the borrower's employer confirming the subsidy and stating the amount and duration of the payments, such as a written agreement between the borrower and employer. Additionally, a verbal VOE is required. See Section 5.3.3, Verbal Verification of Employment, for specific requirements. |
| Income History | There is no set minimum history requirement for inclusion as qualifying income. |
| Income Continuance | The Originator must document that the income is expected to continue for at least three years from the note date. |
| Determination of Qualifying Income | The Originator may add the full amount of the payment to the borrower's monthly income, and not as an offset to the mortgage payment. |
5.3.5.75.3.5.7 Restricted Stock Units and Restricted Stock Employment Income (6/3/26)
Restricted stock units and restricted stock (referred to collectively as "restricted stock") are granted by an employer to its employees as a form of compensation based on either performance or time. They can be awarded as either stock or an equivalent cash value of the number of shares awarded and usually vest over a certain number of years. After they vest, the employee may sell the shares at the current price or hold the stock for future sale.
The following table provides requirements for restricted stock income.
| Criteria | Requirements |
|---|
| Eligibility | - Restricted stock must have vested and been distributed to the borrower without restrictions.
- Sign-on bonuses received in the form of restricted stock that vest over any length of time are not eligible to be used as qualifying income.
|
| Documentation | The Originator must obtain: - a completed Request for Verification of Employment (Form 1005) that shows restricted stock distributions, or
- the most recent paystub showing receipt of restricted stock income and two years' W-2s.
The Originator must also document the following: - evidence stock is publicly traded;
- current vesting schedule reflecting past and future vesting;
- 200-day moving average stock price (for income paid in shares); and
- brokerage or bank statement showing receipt of previous year(s) distribution of restricted stock and, at a minimum, the number of vested shares or cash equivalent.
Additionally, a verbal VOE is required. See 5.3.3, Verbal Verification of Employment, for specific requirements. |
| Income History | Performance-based awards:
A minimum two-year history is recommended; however, income received for a shorter period, but no less than 12 months, may be considered acceptable if there are positive factors to reasonably offset the shorter income history, such as: - future vesting equal or greater than previous vesting and that will continue for at least 24 months; or
- restricted stock income received for the previous 5 years from any employer.
Time-based awards: A minimum 12-month history from the current employer is required.
|
| Income Continuance | Performance-based awards:
The Originator is not required to verify continuance unless they have reason to believe the income may not continue. Time-based awards:
For one-time awards: - The Originator must document that income on the vesting schedule is expected to continue for at least three years from the note date.
- For recurring awards: The Originator is not required to verify continuance unless they have reason to believe the income may not continue.
|
| Determination of Qualifying Income | The calculation method for restricted stock income will vary depending on whether payment is made in shares or cash. For income paid in shares:
(200-day moving average of share price x total number of distributed vested shares (pre-tax) in most recent 24 months) / 24 months. For income paid in cash: The cash distributed (pre-tax) equal to the total value of vested shares in the most recent 24 months / 24 months. Note: When the borrower has a history of income ranging from 12-24 months, the Originator may use the actual number of months the borrower has received the income rather than 24 months. |
5.3.5.85.3.5.8 Seasonal Income (6/3/26)
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain
- a completed Request for Verification of Employment (Form 1005); or
- the most recent paystub and two years' W-2s.
Additionally, a verbal VOE is required. See Section 5.3.5, Verbal Verification of Employment, for specific requirements. Note: For seasonal unemployment compensation, the Originator must verify that it is clearly associated with seasonal layoffs, expected to recur, and reported on the borrower's personal income tax returns. See Section 5.3.6.16, Unemployment Benefits Income, for more information on unemployment benefits. |
| Income History | A minimum two-year history is required. |
| Income Continuance | The Originator is not required to verify continuance unless they have reason to believe the income may not continue. |
| Determination of Qualifying Income | The Originator must calculate an average income amount using year-to-date income, when present, and previous two years' earnings. |
5.3.5.95.3.5.9 Temporary Leave Income (6/3/26)
Temporary leave from work is generally employee-initiated, short in duration and for reasons, including, but not limited to maternity or parental leave, short-term medical disability, or other temporary leave types acceptable by law or to the borrower's employer. Borrowers on temporary leave may or may not be paid during their absence from work.
Note: Mandatory leave initiated by an employer, such as a furlough or layoff, is not considered temporary leave regardless of an expected return to work date. For income from unemployment benefits received as a result of mandatory leave initiated by an employer, see Section 5.3.6.16, Unemployment Benefits Income.
If an Originator is made aware that a borrower will be on temporary leave at the time of the loan closing and that borrower's income is needed to qualify for the mortgage loan, the Originator must determine allowable income and confirm employment as described below.
The following table provides requirements for temporary leave income.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain - documentation to support the borrower's qualifying income in accordance with the specific income type in Section 5.3.5, Sources of Employment-Related Income, and must include:
- the amount and duration of the borrower's "temporary leave income," which may require multiple documents or sources depending on the type and duration of the leave period; and
- the amount of the "regular employment income" the borrower received prior to the temporary leave. Regular employment includes, but is not limited to, the income the borrower receives from employment on a regular basis that is eligible for qualifying purposes (for example, base pay, commissions, and bonus).
- written confirmation from the borrower of their intent to return to work;
- documentation produced by the employer (or a designee of the employer when the employer is using the services of a third-party to administer employee leave) that confirms the borrower's expected return to work date. The documentation may be provided to the Originator by the borrower, the employer, or the employer's designee. Acceptable documentation may include, but is not limited to:
- previous correspondence from the employer or designee that specifies the duration of leave or expected return date, or
- a computer printout from an employer or designee's system of record. (This documentation does not have to comply with the Allowable Age of Credit Documents policy in, Section 5.1.3 Allowable Age Documents and Section 5.1.4 Federal Income Tax Returns.)
Additionally, a verbal VOE is required. See 5.3.3, Verbal Verification of Employment, for specific requirements. If the employer confirms the borrower is currently on temporary leave, the Originator must consider the borrower employed. |
| Income History | The borrower's employment and income history must meet standard eligibility requirements as described in Section 5.3.5 Sources of Employment-Related Income. |
| Income Continuance | Income continuance must be established by income type as described in Section 5.3.5, Sources of Employment Related Income. The Originator must not receive any evidence or information from the borrower's employer to indicate the borrower does not have the right to return to work after the leave period. |
| Determination of Qualifying Income | If the borrower will return to work as of the first loan payment date, the Originator can consider the borrower's regular employment income in qualifying. If the borrower will not return to work as of the first loan payment date, the Originator must use the lesser of the borrower's temporary leave income (if any) or regular employment income. If the borrower's temporary leave income is less than their regular employment income, the Originator may supplement the temporary leave income with available liquid financial reserves.
The following are instructions on how to calculate the "supplemental income": Supplemental income amount = available liquid reserves divided by the number of months of supplemental income - Available liquid reserves: subtract any funds needed to complete the transaction (down payment, closing costs, other required debt payoff, escrows, and minimum required reserves) from the total verified liquid asset amount.
- Number of months of supplemental income: the number of months from the first loan payment date to the date the borrower will begin receiving their regular employment income, rounded up to the next whole number. After determining the supplemental income amount, the Originator must calculate the total qualifying income.
Total qualifying income = supplemental income + the temporary leave income.
The resulting, total qualifying income may not exceed the borrower's regular employment income.
Example
Regular income amount: $6,000 per month Temporary leave income: $2,000 per month Total verified liquid assets: $30,000 Funds needed to complete the transaction: $18,000 Available liquid reserves: $12,000 First payment date: July 1 Date borrower will begin receiving regular employment income: November 1 Supplemental income: $12,000/4 = $3,000 Total qualifying income: $3,000+$2,000 = $5,000 Note: These requirements apply if the Originator becomes aware through the employment and income verification process that the borrower is on temporary leave. If a borrower is not currently on temporary leave, the Originator must not ask if they intend to take leave in the future. |
5.3.65.3.6 Other Sources of Income (6/3/26)
The documentation requirements for each income source type is outlined in the applicable income topic. The documentation must support the history of receipt, if applicable, and the amount, frequency, and duration of the income. In addition, evidence of current receipt of the income must be obtained in compliance with the Section 5.1.4 Allowable Age of Credit Documents policy, unless specifically excluded below.
5.3.6.15.3.6.1 Alimony, Child Support, Equalization Payments, or Separate Maintenance (6/3/26)
The Originator may include alimony, child support, equalization payments, or separate maintenance as income only if the borrower discloses it on the Uniform Residential Loan Application and requests that it be considered in qualifying for the mortgage loan.
The following table provides requirements for alimony, child support, equalization payments, or separate maintenance.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain evidence of the payment amount and terms using one of the following: - a copy of a divorce decree or separation agreement (if the divorce is not final)
Note: If a borrower who is separated does not have a separation agreement that specifies alimony or child support payments, the Originator should not consider any proposed or voluntary payments as income. - any other type of written legal agreement or court decree describing the payment terms, or
- documentation that verifies any applicable state law that mandates alimony, child support, equalization payments, or separate maintenance payments.
Additionally, the Originator must document receipt of income for the most recent six months using sources including, but not limited to: - bank statements,
- cancelled checks, or
- evidence of other electronic receipt of payments.
|
| Income History | - A minimum six-month history is required.
- The payment history must demonstrate the stability of the income, as reflected in the receipt of full, regular, and timely payments.
Note: Lump sum equalization payments are not considered a steady source of income. |
| Income Continuance | The Originator must document that the income is expected to continue for at least three years from the Note date. Note: Check for limitations such as the age of the children for whom the support is being paid, or the duration over which alimony is required to be paid. |
| Determination of Qualifying Income | The monthly payment amount as documented above may be used as qualifying income. Note: The full amount of documented qualifying child support income is nontaxable and may be grossed up. See 5.3.1, General Income Information. |
5.3.6.25.3.6.2 Annuity Pension, or Retirement Income (6/3/26)
The following table provides requirements for annuity (government, personal, or insurance), pension, and retirement income.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain verification of the income amount using at least one of the following: - a statement from the organization providing the income,
- a copy of retirement award letter or benefit statement,
- a copy of financial or bank account statement,
- a copy of signed federal income tax return, an IRS W-2 form, or
- an IRS 1099 form.
However, if the Borrower will begin receiving payments from an annuity or pension account on or before the first payment date of the subject mortgage, document the income with a benefit statement from the organization providing the income. The statement must specify the income type, amount and frequency of the payment, and include confirmation of the initial start date. |
| Income History | Fixed Distribution or fixed payment: No minimum history is required.
Variable Distribution: A minimum 12-month history of receipt is required. |
| Income Continuance | Insurance/personal annuity or retirement account distribution: The Originator must document that income is expected to continue for at least three years from the note date. Distributions or fixed payment from a for pension: Document(s) used to support the monthly income amount may not reference the required minimum three-year continuance from the note date. In these situations, the Originator must make the determination using alternative documentation such as, but not limited to, an applicable written agreement, the respective government program associated with the distribution, or information required by law or regulation related to the distribution. Note: Eligible retirement account balances (from 401(k), IRA, or Keogh) may be combined for the purpose of determining whether the three-year continuance requirement is met. The borrower must have unrestricted access to the accounts without penalty. |
| Determination of Qualifying Income | Fixed Distribution or fixed payment: The monthly payment amount as documented above may be used as qualifying income.
Variable Distribution: Develop an average of the income received for the most recent 12 months. |
5.3.6.35.3.6.3 Boarder Income (6/3/26)
The following table provides requirements for Boarder Income.
| Criteria | Requirements |
|---|
| Eligibility | Income from boarders residing in the borrower’s principal residence or second home is not considered acceptable stable income with the exception of the following: - When a borrower with disabilities receives rental income from a live-in personal assistant, whether or not that individual is a relative of the borrower, the rental payments can be considered as acceptable stable income in an amount up to 30% of the total gross income that is used to qualify the borrower for the mortgage loan. Personal assistants typically are paid by Medicaid Waiver funds and include room and board, from which rental payments are made to the Borrower.
|
| Documentation | The Originator must obtain: - the boarder's history of shared residency (such as a copy of a driver's license, bills, bank statements, or W-2 forms) that shows the boarder's address as being the same as the borrower's address, and
- receipt of income for the most recent 12 months using sources including, but not limited to:
- bank statements
- cancelled checks, or
- evidence of other electronic receipt of payments
|
| Income History | - A minimum of 12-month history is required.
- The payment history must demonstrate the stability of the income, as reflected in the receipt of full, regular, and timely payments.
|
| Income Continuance | Originators are not required to verify continuance unless they have reason to believe the income may not continue. |
| Determination of Qualifying Income | The monthly income amount as documented above may be used as qualifying income. |
5.3.6.45.3.6.4 Capital Gains Income (6/3/26)
Income received from capital gains is generally a one-time transaction; therefore, it should not be considered as part of the borrower’s stable monthly income. However, if the borrower is using income from capital gains to qualify, the income must be verified in accordance with the following requirements.
The following table provides requirements for capital gains income.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain: - copies of the borrower’s signed personal federal income tax returns for the most recent two years, including IRS Form 1040, Schedule D, and
- evidence that the borrower owns a portfolio of assets that can be sold if additional income is needed to make future mortgage loan payments.
Note: Due to the nature of this income, the current receipt of the income is not required to comply with the Allowable Age of Credit Documents policy. However, documentation of the asset ownership must be in compliance with the Allowable Age of Credit Documents policy (5.1.3 Allowable Age of Documents and 5.1.4 Federal Income Tax Returns, for additional information).
|
| Income History | A minimum two-year history is required. |
| Income Continuance | The Originator is not required to verify continuance unless they have reason to believe the income may not continue. |
| Determination of Qualifying Income | Average Income: Depending on the historical trend of the income, The Originator must calculate qualifying income as follows: - Stable or Increasing: Calculate an average income amount using the most recent two years personal federal income tax returns.
- Decreasing: Calculate an average income amount using the most recent year personal federal income tax returns.
Note: Capital losses identified on IRS Form 1040, Schedule D, do not have to be considered when calculating income or liabilities, even if the losses are recurring. |
5.3.6.55.3.6.5 Employment Related Assets as Qualifying Income (6/3/26)
The following table provides requirements for employment-related assets that may be used as qualifying income.
| Criteria | Requirements |
|---|
| Eligibility | If the mortgage loan does not meet the below parameters, employment-related assets may still be eligible under other standard income guidelines, such as Section 5.3.6.7, Interest and Dividend Income or Section 5.3.6.2, Annuity, Pension, or Retirement Income.
| Loan Parameter | Requirement | | Max LTV, CLTV, and HCLTV Ratio | - 70%, or
- 80% if the owner of the asset(s) being used to qualify is at least 62 years old at the time of closing. If the asset is jointly owned, all owners must be a borrower on the loan and the borrower using the income to qualify must be at least 62 years old at the time of closing.
| | Loan Purpose | Purchase and limited cash-out refinance only | | Occupancy | Primary residence and second home only | | Number of Units | As permitted by occupancy type |
|
| Asset Requirements | - Assets used for the calculation of the monthly income stream must be owned individually by the borrower, or the co-owner of the assets must be a co-borrower on the loan.
- The documentation must be in compliance with 5.1.3 Allowable Age of Credit Documents and 5.1.4 Federal Income Tax Returns.
- If a penalty would apply to a distribution of funds from the account made at the time of calculation, then the amount of such penalty applicable to a complete distribution from the account (after costs for the transaction) must be subtracted to determine the income stream from these assets.
- The borrower must only be considered to have unrestricted access to a 401(k) or IRA, SEP, Keogh retirement account if the borrower has, as of the time of calculation, the unqualified and unlimited right to request a distribution of all funds in the account (regardless of any possible tax withholding or applicable penalty applied to such distribution).
- If eligible employment-related assets have been liquidated and placed into a trust within 12 months of the loan's application date, income must be calculated in accordance with the requirements in this table. Ineligible assets are non-employment-related assets (for example, stock options, non-vested restricted stock, lawsuits, lottery winnings, sale of real estate, inheritance, and divorce proceeds). Checking and savings accounts are generally not eligible as employment-related assets, unless the source of the balance in a checking or savings account was from an eligible employment-related asset (for example, a severance package or lump sum retirement distribution). Virtual currency is not an eligible asset.
|
| Documentation | The Originator must obtain evidence the assets are liquid and available to the borrower and must be sourced using one of the following: - A non-self-employed severance package or non-self-employed lump sum retirement package (a lump sum distribution) - these funds must be documented with a distribution letter from the employer (Form 1099-R) and deposited to a verified asset account.
- For 401(k) or IRA, SEP, Keogh retirement accounts - the borrower must have unrestricted access to the funds in the accounts and can only use the accounts if distribution is not already set up or the distribution amount is not enough to qualify. The account and its asset composition must be documented with the most recent monthly, quarterly, or annual statement.
|
| Income History | No minimum history is required. |
| Income Continuance | Income continuance does not need to be documented since income is calculated based on loan terms as described below. |
| Determination of Qualifying Income | The Originator must divide "Net Documented Assets" by the amortization term of the loan (in months).
"Net Documented Assets" are equal to the sum of eligible assets minus - the amount of the penalty that would apply if the account was completely distributed at the time of calculation; and
- the amount of funds used for down payment, closing costs, and required reserves.
| Example: Calculation of Net Documented Assets | | IRA (made up of stocks and mutual funds) | $500,000 | | Minus 10% of $500,000 ($500,000 x .10) (Assumes a 10% penalty applies for early distribution, which must be levied against any cash being withdrawn for closing the transaction as well as the remaining funds used to calculate the income stream.) | (-) $50,000 | | Total eligible documented assets | $450,000 | | Minus funds required for closing (down payment closing costs, reserves) | (-) $100,000 | | Net Documented Assets | (=) $350,000 | | Monthly income calculation ($350,000/360 (or applicable term of loan in months)) | $972.22/month |
|
5.3.6.65.3.6.6 Foster-Care Income (6/3/26)
Income received from a state-or county-sponsored organization for providing temporary care for one or more children may be considered an acceptable stable income source if the following requirements are met.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain: - evidence of the payment amount(s) by using letters of verification from the state- or county-sponsored organization(s) providing the income, and
- receipt of income documented for the most recent 12 or 24-months, based on the income history requirement below, using sources including, but not limited to:
- bank statements
- canceled checks, or
- other electronic receipt of payments
|
| Income History | A two-year history of providing foster-care services is expected, however, if the borrower has not received this type of income for two full years, the income may still be counted as stable income if: - the borrower has at least a 12-month history of providing foster-care services, and
- the income does not represent more than 30% of the total gross income that is used to qualify for the mortgage loan.
|
| Income Continuance | Originators are not required to verify continuance unless they have reason to believe the income may not continue. |
| Determination of Qualifying Income | Average Income: Depending on the historical trend of the income, the Originator must calculate qualifying income as follows: - Stable or increasing: Calculate an average income amount using the most recent 12 or 24 months, based on the income history requirements above.
- Decreasing: Calculate an average income amount using the most recent 12 months.
|
5.3.6.75.3.6.7 Interest and Dividend Income (6/3/26)
The following table provides verification requirements for interest and dividends income.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain:
copies of the borrower's signed personal federal income tax returns for the most recent two years, or copies of account statements that cover the most recent 24 months. Additionally, the Originator must verify the borrower's ownership of the assets on which the interest or dividend income was earned. Documentation of asset ownership must be in compliance with the Allowable of Age Credit Documents policy (see 5.1.3, Age of Documents and 5.1.4 Federal Income Tax Returns, for additional information) |
| Income History | A minimum two-year history is required. |
| Income Continuance | Originators are not required to verify continuance unless there is evidence that the asset will be depleted. |
| Determination of Qualifying Income | Average Income: Depending on the historical trend of the income, the Originator must calculate qualifying income as follows: - Stable or Increasing: Calculate an average income amount using the most recent two years personal federal income tax returns.
- Decreasing: Calculate an average income amount using the most recent year personal federal income tax returns.
Note: Subtract any assets used for down payment or closing costs from the borrower's total assets before calculating expected future interest or dividend income. |
5.3.6.85.3.6.8 Long-term Disability Income (6/3/26)
The following table provides requirements for long-term disability income. It does not apply to disability income that is received from the Social Security Administration. See Section 5.3.6.14 Social Security Income, for additional information.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain: - a copy of the borrower's disability policy or benefits statement from the benefits payer (insurance company, employer, or other qualified disinterested party) to determine:
- the borrower's current eligibility for the disability benefits,
- the amount and frequency of the disability payments, and
- if there is a contractually established termination or modification date.
Additionally, the Originator must obtain evidence that the borrower will receive at least one payment on or before the first payment due date.
|
| Income History | No minimum history is required. |
| Income Continuance | Originators are not required to verify continuance unless they have reason to believe the income may not continue. (Re-evaluation of benefits is not considered a reason to support income will not continue.) |
| Determination of Qualifying Income | The monthly income amount as documented above may be used as qualifying income. However, if a borrower is currently receiving short-term disability payments that will decrease to a lesser amount within the next three years because they are being converted to long-term benefits, the amount of the long-term benefits must be used as income to qualify the borrower. For additional information on short-term disability, see Section 5.3.5.9, Temporary Leave Income. |
5.3.6.95.3.6.9 Mortgage Credit Certificates (6/3/26)
States and municipalities can issue mortgage credit certificates (MCCs) in place of, or as part of, their authority to issue mortgage revenue bonds. MCCs enable an eligible first-time homebuyer to obtain a mortgage secured by their principal residence and to claim a federal tax credit for a specified percentage (usually 20% to 25%) of the mortgage interest payments.
| Criteria | Requirements |
|---|
| Documentation | For purchase transactions, the Originator must obtain: - a copy of the MCC, and
- the Originator’s documented calculation of the adjustment to the borrower's income.
For refinance transactions, the Originator must obtain: - confirmation prior to loan closing from the MCC provider that the MCC remains in effect for the new loan, and
- copies of the MCC documents, including, the reissue certification.
Note: Because the MCC is transaction specific, it does not have to comply with the Allowable Age of Credit Documents policy (see 5.1.3 Age of Credit Documents and 5.1.4 Federal Income Tax Returns, for additional information).
|
| Income History | No minimum history is required. |
| Income Continuance | Originators are not required to verify continuance unless they have reason to believe the income may not continue. |
| Determination of Qualifying Income | When calculating the borrower’s DTI ratio, treat the maximum possible MCC income as an addition to the borrower’s income, rather than as a reduction to the amount of the borrower’s mortgage payment. Use the following calculation when determining the available income: [(Mortgage Amount) x (Note Rate) x (MCC %)] ÷ 12 = Amount added to borrower’s monthly income. For example, if a borrower obtains a $100,000 mortgage that has a note rate of 7.5% and they are eligible for a 20% credit under the MCC program, the amount that should be added to their monthly income would be $125 ($100,000 x 7.5% x 20% = $1500 ÷ 12 = $125). |
5.3.6.105.3.6.10 Notes Receivable Income (6/3/26)
The following table provides requirements for notes receivable income.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain: - a copy of the note to establish the amount and length of payment, and
- receipt of income for the most recent 12 months using sources including but not limited to:
- bank statements,
- canceled checks, or
- evidence of other electronic receipt of payments.
|
| Income History | - A minimum 12- month history is required.
- The payment history must demonstrate the stability of the income, as reflected in the receipt of full, regular, and timely payments.
- Payments on a note executed within the past 12 months, regardless of the duration, may not be used as stable income.
|
| Income Continuance | The Originator must document that income is expected to continue for at least three years from the Note date. |
| Determination of Qualifying Income | The monthly income amount as documented above may be used as qualifying income. |
5.3.6.115.3.6.11 Public Assistance Income (6/3/26)
The following table provides requirements for public assistance income, which can include adoption assistance.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain letters or exhibits from the paying agency that state the amount, frequency, and duration of the benefit payments. Additionally, the Originator must obtain evidence that the borrower will receive at least one payment on or before the first payment due date. |
| Income History | No minimum history is required. |
| Income Continuance | The Originator must document that income is expected to continue for at least three years from the Note date. |
| Determination of Qualifying Income | The monthly income amount as documented above may be used as qualifying income. Note: If any amount of documented qualifying income is nontaxable, it may be grossed up. See Section 5.3.1, General Income Information for nontaxable income guidelines. |
5.3.6.125.3.6.12 Royalty Payment Income (6/3/26)
The following table provides requirements for royalty income.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain evidence of the income amount using: - a royalty contract, agreement, or statement confirming amount, frequency, and duration of the income; and
- the borrower’s most recent signed federal income tax return, including the related IRS Form 1040, Schedule E.
Note: If royalty income is not reported on the most recent federal income tax return, the current receipt of income for the most recent 12 months must be documented using sources including, but not limited to: - bank statements,
- canceled checks, or
- evidence of other electronic receipt of payments.
|
| Income History | A minimum 12-month history is required. |
| Income Continuance | The Originator must document that income is expected to continue for at least three years from the Note date. |
| Determination of Qualifying Income | The monthly income amount as documented above may be used as qualifying income. |
5.3.6.135.3.6.13 Section 8 Housing Choice Voucher Homeownership Program Payments (6/3/26)
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain evidence: - of the payment amount from the public agency that issues the voucher, and
- the borrower will receive at least one payment on or before the first payment due date.
|
| Income History | A minimum 12-month history is required. |
| Income Continuance | The Originator is not required to verify continuance unless they have reason to believe the income may not continue. |
| Determination of Qualifying Income | The Originator must determine the monthly payment amount from the public agency that issues the voucher. Note: The full amount of documented qualifying income is nontaxable and may be grossed up. See Section 5.3.1, General Income Information for nontaxable income guidelines. |
5.3.6.145.3.6.14 Social Security Income (6/3/26)
The following table provides requirements for Social Security income.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain evidence of regular receipt of payments, as verified by the following, depending on the type of benefit and the relationship of the beneficiary (self or other) as shown in the table below. In addition, an SSA Award letter may be used to document the income if the borrower is receiving Social Security payments or if the borrower will begin receiving payments on or before the first payment date of the subject mortgage as confirmed by a recently issued award letter.
| Type of Social Security benefit | Borrower is drawing Social Security benefits based on own account/work record | Borrower is drawing Social Security benefits based on another person's account/work record or based on their own account/work record for the benefit of another1 | | Retirement | - Social Security Administration's (SSA) Award letter,
- SSA-1099,
- Most recent signed federal income tax returns (or tax transcripts2 ), or
- Proof of current receipt
| - SSA Award letter,
- Proof of current receipt, and
- Three-year continuance.
| | Disability | - Social Security Administration's (SSA) Award letter
- SSA-1099,
- Most recent signed federal income tax returns (or tax transcripts2), or
- Proof of current receipt
| | Survivor Benefits | NA | | | Supplemental Social Security income | - SSA Award letter, and
- Proof of current receipt
| NA |
|
| Income History | No minimum history is required. |
| Income Continuance | Retirement/Long-Term Disability based on own account/work record: Originators are not required to verify continuance unless they have reason to believe the income may not continue. Other scenarios: The Originator must document that income is expected to continue for at least three years from the Note date. Note: Confirmation of three-year continuance does not require documentation that provides a defined expiration date and can be assessed by verifying the SSA's requirements related to the specific benefit(s) being paid. For example, if the SSA ties receipt of the benefits to the beneficiary's age, confirmation of a three-year continuance can be met by verifying the beneficiary's age supports that benefit(s) will continue for at least three years from the date of the loan application. |
| Determination of Qualifying Income | The monthly income amount as documented above may be used as qualifying income. Note: The Originator is not required to provide documentation to support that 15% of the Social Security income is nontaxable. Example: - Benefit amount: $1,500
- Nontaxable amount: $1,500 x 15% = $225
- Gross-up amount: $225 x 25% = $56 (rounded to the nearest dollar)
- Qualifying income: $1,556 (does not require additional documentation)
If the Originator opts to gross-up more than 15% of Social Security income, then additional documentation to support that nontaxable income must be included in the loan file. See 5.3.1 General Income Information for nontaxable income guidelines. |
1 Examples of how a borrower might draw Social Security benefits from another person's account/work record and use the income for qualifying:
- A borrower may be eligible for benefits from a spouse, ex-spouse, or dependent parents (the benefit is paid to the borrower on behalf of the spouse, etc.; or
- A borrower may use Social Security income received by a dependent (a minor or disabled dependent).
2 If joint tax returns or tax transcripts include income that is not associated with a borrower on the loan transaction, the Originator must obtain additional documentation supporting the amount of income from the SSA being used in qualifying, such as the SSA-1099.
5.3.6.155.3.6.15 Trust Income (6/3/26)
The following table provides requirements for trust income.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain one or more of the following trust verification documents to confirm the amount, frequency, type of income being received, and the date the trust was created: - a copy of the trust agreement,
- the trustee's statement (provided the borrower is not the trustee),
- the trust's federal income tax returns, or
- a letter from an accountant or attorney who reviewed the trust documents, when the above documents are not available or when the borrower is the trustee.
Trust income with variable payments also requires a minimum 24-month history of trust income by obtaining copies of the following:
- the borrower's signed federal tax income tax returns for the most recent two years, or
- the trust's federal income tax returns for the most recent two years.
Additionally, the Originator must document receipt of the income for at least one month using sources including, but not limited to:
- bank statements,
- cancelled checks, or
- evidence of other electronic receipt of payments.
|
| Income History | Fixed payments: The Originator must confirm the trust was established for 12 months or longer, unless all of the following requirements are met: - the trust verification documentation reflects fixed payments,
- the borrower is not the grantor, and
- at least one payment is received prior to closing.
Variable payments: A minimum 24-month history is required. Note: Trusts created in the previous 12 months using a borrower's eligible employment-related assets, as defined in Section 5.3.6.5, Employment Related Assets as Qualifying Income, may still be used as stable income but must meet the income calculation and all other requirements in that topic. |
| Income Continuance | The Originator must confirm continuance of income based on the type of income received through the trust. For example, if the income from the trust is derived from rental income, then three-year continuance in not required. However, if the income is a fixed payment derived from a depleting asset, the Originator must document that income is expected to continue for at least three years from the Note date. Note: If any assets from the trust are being used for down payment, closing costs, or reserves, those assets must be subtracted from the total amount before determining if the trust income meets these Income Continuance requirements. |
| Determination of Qualifying Income | | Fixed Payments | Variable Payments | | The Originator must use the fixed payment amount from the trust verification documentation as the borrower's qualifying income, converting it to a monthly amount, as applicable. | The Originator must develop an average of the income received for the most recent two years. Note: Income received from 12 to 24 months may be considered as acceptable income when other positive factors are present that reasonably offset a shorter income history. |
|
5.3.6.165.3.6.16 Unemployment Benefits Income (6/3/26)
Income from unemployment benefits can be considered when qualifying the borrower in the following scenarios:
- The income has been consistently received for at least two years as verified by copies of the singed federal income tax returns that reflect unemployment income is associated with seasonal employment. See Section 5.3.5.8 Seasonal Income, for additional information.
- The income from unemployment benefits can be used in the calculation of financial resources that are required under Option 2 in Section 5.3.5.3, Employment Offers or Contracts.
The table below provides requirements for unemployment benefits income.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain two years of signed personal federal income tax returns.. |
| Income History | A minimum two-year history is required. |
| Income Continuance | The Originator is not required to verify continuance unless they have reason to believe the income may not continue. |
| Determination of Qualifying Income | - Average Income: Depending on the historical trend of the income, the Originator must calculate qualifying income as follows:
- Stable or Increasing: Calculate an average income amount using the most recent two years personal federal income tax returns.
- Decreasing: Calculate an average income amount using the most recent year personal federal income tax returns.
|
5.3.6.175.3.6.17 VA Benefits Income (6/3/26)
The following table provides verification requirements for income from VA benefits.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain verification of the income amount and terms using one or more of the following: - a statement from the organization (VA) providing the income,
- a copy of the award letter or benefit statement,
- a copy of the financial or bank account statement,
- a copy of the signed federal income tax return, or
- an IRS 1099 form.
Additionally, the Originator must obtain evidence the borrower will receive at least one payment on or before the first payment due date. |
| Income History | No minimum history is required. |
| Income Continuance | The Originator must document that income is expected to continue for at least three years from the note date. (Verification is not required for VA retirement or long-term disability benefits.) |
| Determination of Qualifying Income | The monthly income amount as documented above may be used as qualifying income.
Note: Education benefits are not acceptable income because they are offset by education expenses. |
5.3.6.185.3.6.18 Schedule K-1 Income <25% Ownership (6/3/26)
The following table provides income requirements for borrowers who have less than 25% ownership of a partnership, S corporation, or limited liability company (LLC). For borrowers who have more than 25% ownership, Originators must follow the verification of income requirements for self-employed borrowers. See Section 5.4.1, Underwriting Factors and Documentation for a Self-Employed Borrower for additional information.
| Criteria | Requirements |
|---|
| Documentation | The Originator must obtain the most recent two years of - signed personal federal income tax returns, and
- IRS Schedule K-1.
When only rental income is reported on Schedule K-1, the Originator must obtain
- one year of signed individual federal income tax returns, and
- IRS Schedule K-1.
|
| Income History | A minimum two-year history is required. |
| Income Continuance | The Originator is not required to verify continuance unless they have reason to believe the income may not continue. |
| Determination of Qualifying Income | - Income reported on Schedule K-1 can only be considered if the Originator obtains documentation verifying:
- the income was actually distributed to the borrower and is consistent with the level of business income being used to qualify, or
- the business has adequate liquidity to support the withdrawal of earnings. The Originator may use discretion in the method used to confirm the business has adequate liquidity.
- The Originator is not required to analyze the viability of the business in accordance with self-employment requirements and may only use the borrower's proportionate share of earning reflected on Schedule K-1 when calculating the borrower's income.
- If the borrower has a two-year history of receiving "guaranteed payments to the partner" from a partnership or an LLC, these payments can be added to the borrower's cash flow.
Note: An exception to the two-year requirements of receiving "guaranteed payments to the partner" is if a borrower has recently acquired nominal ownership in a professional services partnership (for example, a medical practice or law firm) after having an established employment history with the partnership. In this situation, the Originator may rely on the borrower's guaranteed compensation. This must be evidenced by the borrower's partnership agreement and further supported by evidence of current year to-date income. |
5.3.75.3.7 Rental Income (6/3/26)
In conjunction with the policies in this topic, PFIs must also comply with, as applicable, but not limited to, the policies in the following:
- 5.3.1.2 Continuance of Income;
- 5.7.1 Minimum Reserve Requirements; and
- 5.14.5 Qualifying Impact of Other Real Estate Owned.
5.3.85.3.8 Rental Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information
and requirements.
In conjunction with the policies in this topic, PFIs must also comply with, as applicable, but not limited to, the policies in the following:
- 5.3.1.3 Continuity of Income;
- 5.7.1 Minimum Reserve Requirements;
- 5.14.4 Qualifying Impact of Other Real Estate Owned.
5.3.8.15.3.8.1 Eligible Properties (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information
and requirements.
Rental income is an acceptable source of stable income if it can be established that the income is likely to continue. If the rental income is derived from the subject property, the property must be a two- to four-unit principal residence property in which the Borrower occupies one of the units.
If the income is derived from a property that is not the subject property, there are no restrictions on the property type. For example, rental income from a commercial property owned by the Borrower is acceptable if the income otherwise meets all other requirements.
5.3.8.25.3.8.2 Ineligible Properties (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information
and requirements.
Generally, rental income from the Borrower’s principal residence (a one-unit principal residence or the unit the Borrower occupies in a two- to four-unit property) or a second home cannot be used to qualify the Borrower. However, there are certain exceptions to this policy for boarder income.
5.3.8.35.3.8.3 General Requirements for Documenting Rental Income (8/11/26)
If a Borrower has a history of renting the subject or another property, generally the rental income will be reported on IRS Form 1040, Schedule E of the Borrower’s personal tax returns or on Rental Real Estate Income and Expenses of a Partnership or an S Corporation form (IRS Form 8825) of a business tax return. If the Borrower does not have a history of renting the subject property or if, in certain cases, the tax returns do not accurately reflect the ongoing income and expenses of the property, the PFI may be justified in using a fully executed current lease agreement. Examples of scenarios that justify the use of a lease agreement are
- purchase transactions where there is an existing lease on the property that will transfer to the borrower;
- refinance transactions in which the Borrower purchased the rental property during or subsequent to the last tax return filing;
- refinance transactions of a property that experienced significant rental interruptions such that income is not reported on the recent tax return (for example, major renovation to a property occurred in the prior year that affected rental income); and
- transactions where rental income is being used to qualify for any property placed in service in the current calendar year, for example, when converting a principal residence to an investment property.
When the subject property is a two- to four-unit property that will generate rental income used for qualifying purposes, PFIs must use:
- For new appraisals completed prior to November 2, 2026, the appraisal must be reported on either the Small Residential Income Property Appraisal Report (FNMA Form 1025/Freddie Mac Form 72), or an equivalent form containing, at a minimum, the same information required by the applicable GSE form.
- When the need arises to establish a monthly market rent after the URAR has been initially completed, the original appraiser must be re-engaged to amend the original URAR to include the rental information section.
- In rare cases, the original appraiser may not be available to amend the appraisal report. In this situation, the Single-Family Comparable Rent Schedule (Fannie Mae Form 1007/Freddie Mac Form 1000) may be completed by a different appraiser to satisfy the requirement for the loan.
- Note: The Single-Family Comparable Rent Schedule (Fannie Mae Form 1007/Freddie Mac Form 1000) is not a standalone appraisal report, and the alternate appraiser completing it must take the necessary steps to be compliant with Uniform Standards of Professional Appraisal Practice (USPAP).
- For new appraisals completed on or after November 2, 2026: the rental information section of the Uniform Residential Appraisal Report (URAR) must be used to support the income earning potential of the property.
- When the need arises to establish a monthly market rent after the URAR has been initially completed, the original appraiser must be re-engaged to amend the original URAR to include the rental information section.
Note: The rental payment on the lease must be reflected in U.S. dollars (cannot be in virtual currency).
5.3.8.45.3.8.4 Documenting Rental Income from a 2–4-unit Primary Residence Subject Property (8/11/26)
PFI must obtain documentation that is used to calculate the monthly rental income generated from a subject property that is a 2–4-unit primary residence, used for qualifying purposes. The documentation may vary depending on whether the Borrower has a history of renting the property, and whether the prior year tax return includes the income.
| Does the Borrower Have a History of Receiving Rental Income from the Subject Property? | Transaction Type | Documentation Requirements |
|---|
| Yes | Refinance | Fannie Mae Form 1025/Freddie Mac Form 72*, as applicable, and either
· the Borrower’s most recent year of signed federal income tax returns, including Schedule 1 and Schedule E, or
· copies of the current lease agreement(s) if the Borrower can document a qualifying exception (see Reconciling Partial or No Rental History on Tax Returns below). |
| No | Purchase | Fannie Mae Form 1025/Freddie Mac Form 72*, as applicable, and
copies of the current lease agreement(s) if transferred to the Borrower.
If the property is not currently rented or if the existing lease agreement is not being transferred to the borrower, then, lease agreements are not required Fannie Mae Form 1025/Freddie Mac Form 72* may be used.
If there is a lease on the property that is being transferred to the Borrower, see Section 9.6 Acceptable Title Exceptions for additional information.
|
| No | Refinance | Fannie Mae Form 1025/Freddie Mac Form 72*, as applicable, and
· copies of the current lease agreement(s). |
*Alternatively, the most recent version of the Uniform Residential Appraisal Report (URAR) may be used. On or after November 2, 2026, Form 1025/Form 72 will no longer be accepted. Appraisers are to use the most current version of the Uniform Residential Appraisal Report (URAR).
If the Borrower is not using any rental income from the subject property to qualify, the gross monthly rent must still be documented for PFI reporting purposes.
5.3.8.55.3.8.5 Documenting Rental Income from Property Other than the Subject Property (8/11/26)
When the Borrower owns property – other than the subject property – that is rented, the PFI must document the monthly gross (and net) rental income with:
- the Borrower’s most recent signed federal income tax return that includes Schedule 1 and Schedule E,
- the most recent signed federal business income tax return for a partnership or S corporation, that includes IRS Form 8825 (when only rental income is reported on the K-1), or
- both of the above, when rental properties are reported on both personal and business returns.
When ordinary income is also reported on Schedule K-1, along with IRS Form 8825 rental income, all documentation guidelines noted in Section 5.4.1, Underwriting Factors and Documentation for a Self-Employed Borrower or Section 5.3.8.18, Schedule K-1 Income
5.3.8.65.3.8.6 Reconciling Partial or No Rental History on Tax Returns (8/11/26)
When rental income is being used to qualify, the Originator must consider whether the income reported on the most recent signed personal federal income tax returns is appropriate to use in underwriting.
To determine qualifying rental income, in those scenarios where the borrower has only a partial rental history on the personal federal tax returns, the Originator must determine the period of time the rental property was in service (that is, rented, with the borrower receiving rental income from that property).
If the Borrower is able to document (per the table below) that the rental property was not in service the previous tax year, or was in service for only a portion of the previous tax year, the PFI may determine qualifying rental income by using;
- Schedule E income and expenses, and annualizing the income (or loss) calculation; or
- fully executed lease agreement(s) to determine the gross rental income to be used in the net rental income (or loss) calculation.
| If ... | Then ... |
|---|
| the property was acquired or placed into service during the most recent tax filing year, | · the PFI must confirm the purchase date using the settlement statement or other documentation, and
· Fair Rental Days on Schedule E of the most recently filed tax return must confirm partial year rental income. |
| the property was acquired during or placed into service subsequent to the most recent tax filing year, | · the PFI must confirm the purchase date using the settlement statement or other documentation, if applicable and
· Schedule E (Fair Rental Days) or the most recently filed tax return must confirm no reflect rental income or expenses for this property. |
| the property was acquired prior to the most recent tax filing year, but the rental property was out of service for an extended period | · Repair expenses on Schedule E of the most recently filed tax return must reflect the costs for renovation or rehabilitation. Additional documentation may be required to ensure that the expenses support a significant renovation that supports the amount of time that the rental property was out of service.
· Schedule E (Fair Rental Days) of the most recently filed tax return must confirm the number of days that the rental unit was in service, which must support the unit being out of service for all or a portion of the year. |
| the PFI determines that some other situation warrants an exception to use a lease agreement, | · the PFI must provide an explanation and justification in the loan file. |
If the Borrower is converting a principal residence to an investment property, see 5.14.4 Qualifying Impact of Other Real Estate Owned, for guidance in using that rental income to qualify the Borrower.
5.3.8.75.3.8.7 Calculating Monthly Qualifying Rental Income or Loss (8/11/26)
Rental income must be calculated for each rental property. The amount of rental income that may be used to qualify may be restricted depending on whether the borrower currently has a housing payment and has a history of receiving rental income.
A housing payment is the total monthly expense amount the borrower(s) is currently making for the primary residence occupied by the borrower(s).
A housing payment can only include the following:
- rental housing payment,
- PITIA payment and/or leasehold payment for mortgaged properties,
- or property taxes and/or leasehold payments for non-mortgaged properties.
See Section 5.14.1, General Information on Liabilities and Section 5.14.3, Monthly Debt Obligations for additional information.
If not otherwise documented as one of the borrower's existing liabilities, the Originator must document the borrower's housing payment. Documentation may include but is not limited to:
- direct verification of rent from a management company,
- bank statements reflecting a payment to an organization or individual,
- cancelled checks or equivalent, or
- evidence of property taxes paid.
The following tables provide restrictions on the amount of rental income that may be used for qualifying purposes based on various borrower and rental income scenarios.
| Subject Property |
|---|
| Property Type | Current Primary Housing Payment | Property Management Experience | Restrictions on Rental Income Used to Qualify |
| 2-4 Unit Principal Residence | Yes | Yes | Rental income used in qualifying has no restrictions |
| No | Rental income used in qualifying may not exceed the PITIA |
| No | N/A | No rental income can be used in qualifying |
| Non-Subject Property |
| Property Type | Current Primary Housing Expense | Property Management Experience | Restrictions on Rental Income Used to Qualify |
| 2-4 Unit Principal Residence | Yes | Yes | Rental income used in qualifying has no restrictions |
| No | Rental income used in qualifying may not exceed the PITIA |
| 1-4 Unit Investment Property - new or newly placed in service (includes departing residence) | Yes | Yes
No | Rental income used in qualifying has no restrictions |
| Rental income can only be used to offset the PITIA of the related property |
| No | N/A | No rental income can be used in qualifying |
| 1-4 Unit Investment Property - existing rental (one year of receiving rental income) | Yes | Yes | Rental income used in qualifying has no restrictions |
| No |
See Treatment of the Income (or Loss) below for how to apply rental income.
Note: Rental income reported on IRS Form 8825 of federal business tax returns is reported as self-employment income.
The Originator must establish a history of property management experience by obtaining one of the following:
- The Borrower’s most recent signed federal income tax return, including Schedules 1 and E. Schedule E should reflect rental income received for any property and Fair Rental Days of 365;
- If the property has been owned for at least one year, but there are less than 365 Fair Rental Days on Schedule E,
- a current signed lease agreement may be used to supplement the federal income tax return; or
- two years of the most recent federal income tax returns reflecting rental income received may be obtained to document that the property was in service for the full year (for example: a short-term rental income for more than one year, but the fair rental days are less than 365 in each year).
- A current signed lease may be used to supplement a federal income tax return if the property was out of service for any time period in the prior year. Schedule E must support this by reflecting a reduced number of days in use and related repair costs.
5.3.8.7.15.3.8.7.1 Method for Calculating the Income (8/11/26)
The method for calculating rental income (or loss) for qualifying purposes is dependent upon the documentation that is being used. (that is, Schedule E or a current fully executed lease agreement). The following table provides examples of different methods.
| If the supporting document is... | And the property was in service... | The originator must … |
|---|
| federal tax returns, Schedule E | for a full or partial year | average the annual rental income or loss over 12 months. |
| a current fully executed lease agreement supporting monthly rental amount, and federal tax returns, including Schedule E | less than the full year, and the borrower qualifies for a documented exception to use a lease agreement to support monthly rental income | average the rental income (or loss) over the number of months the borrower used the property as a rental unit. |
When Schedule E is used to calculate qualifying rental income, the PFI must add back any listed depreciation, interest, homeowners’ association dues, taxes, or insurance expenses to the Borrower’s cash flow. Non-recurring property expenses may be added back, if documented accordingly.
See Section 5.3.9.3 General Requirements for Documenting Rental Income, 5.3.9.6 Reconciling Partial or No Rental History on Tax Returns (Schedule E Only) and 5.3.9.8 Treatment of the Income (or Loss) for further instructions.
5.3.8.7.25.3.8.7.2 Lease Agreements, Form 1007, Form 1025, or Uniform Residential Appraisal Report (8/11/26)
When current lease agreements or market rents reported on Form 1007, Form 1025, or URAR)* are used, the PFI must calculate the rental income by multiplying the gross monthly rent(s) by 75%. The remaining 25% of the gross rent will be absorbed by vacancy losses and ongoing maintenance expenses.
When using a lease agreement, the lease agreement amount must be supported by:
- two months consecutive bank statements or electronic transfers of rental payments for existing lease agreements, or
- copies of the security deposit and first month's rent check with proof of deposit for newly executed agreements.
*For appraisals completed on or after November 2, 2026, appraisers must report the market rents on the redesigned Uniform Residential Appraisal Report (URAR). Form 1007 and Form 1025 will no longer be acceptable
See Treatment of the Income (or Loss) below for further instructions.
5.3.8.85.3.8.8 Treatment of the Income (or Loss) (6/12/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
Updates effective on or after November 2, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The treatment and amount of monthly qualifying rental income (described in 5.3.8.7 Calculating Monthly Rental Income (or Loss)) in the calculation of the Borrower's total debt-to-income ratio — varies depending on whether the Borrower occupies the rental property as their principal residence.
If the rental income relates to the Borrower’s principal residence:
- The monthly qualifying rental income (as defined above) must be added to the Borrower’s total monthly income. (The income is not netted against the PITIA of the property.)
- The full amount of the mortgage payment (PITIA) must be included in the Borrower’s total monthly obligations when calculating the debt-to-income ratio.
If the rental income (or loss) relates to a property other than the Borrower's principal residence:
- If the monthly qualifying rental income (as defined above) minus the full PITIA is positive, it must be added to the Borrower’s total monthly income. (subject to the limits in 5.3.8.7 Calculating Monthly Rental Income (or Loss))
- If the monthly qualifying rental income minus PITIA is negative, the monthly net rental loss must be added to the Borrower’s total monthly obligations.
- The full PITIA for the rental property is factored into the amount of the net rental income (or loss); therefore, it should not be counted as a monthly obligation.
- The full monthly payment for the Borrower's principal residence (full PITIA or monthly rent) must be counted as a monthly obligation.
Note: When a borrower owns multiple rental properties, the rental income for all non-subject properties is first calculated for each property, then aggregated. The aggregate total of the income (or loss) is then added to the borrower's total monthly income or included in their monthly obligations, as applicable.
5.3.8.95.3.8.9 Offsetting Monthly Obligations for Rental Property Reported through a Partnership or an S Corporation (8/11/26)
If gross rents and related expenses are reported through a partnership or S corporation, then any rental income (or loss) must be evaluated as self-employment income regardless of the borrower's percentage of ownership interest or whether the borrower is personally obligated on the mortgage debt. However, if the related property is reported on the most recent federal business tax return and it's clear the business is responsible for the payment, the full PITIA can be excluded from the DTI calculation.
See 5.6.1 Analyzing Partnership Returns for a Partnership or LLC and 5.6.2 Analyzing Returns for an S Corporation.
5.3.8.105.3.8.10 Rental Income Calculation Worksheets (8/11/26)
PFIs may use Fannie Mae’s worksheets to calculate rental income or income calculator that can be used to calculate income. Use of these worksheets is optional. The worksheets are:
- Rental Income Worksheet – Principal Residence, 2– to 4–unit Property (Form 1037),
- Rental Income Worksheet – Individual Rental Income from Investment Property(s) (up to 4 properties) (Form 1038),
- Rental Income Worksheet – Individual Rental Income from Investment Property(s) (up to 10 properties) (Form 1038A), and
5.3.8.115.3.8.11 Reporting of Gross Monthly Rent (8/11/26)
Eligible rents on the subject property (gross monthly rent) must be reported in the loan delivery data for all two- to four-unit principal residence properties, regardless of whether the Borrower is using rental income to qualify for the mortgage loan. If the Borrower is using rental income from the subject property to qualify for the mortgage loan, all of the applicable requirements above must be followed to document and calculate the income.
If the Borrower is not using any rental income from the subject property to qualify, gross monthly rent must be documented only for PFI reporting purposes. The Borrower can provide one of the sources listed above, or may provide one of the following sources (listed in order of preference):
- the appraisal report for a one-unit investment property or two- to four-unit property, or Single-Family Comparable Rent Schedule (Form 1007)*, provided neither the effective date of the applicable appraisal nor Form 1007* is dated 12 months or more prior to the date of the Note;
- if the property is not currently rented, the PFI may use the opinion of market rents provided by the appraiser; or
- if an appraisal or Form 1007* is not required for the transaction, the PFI may rely upon either a signed lease from the Borrower or may obtain a statement from the Borrower of the gross monthly rent being charged (or to be charged) for the property. The monthly rental amounts must be stated separately for each unit in a two- to four-unit property. The disclosure from the Borrower must be in the form of one of the following:
- a written statement from the Borrower, or
- an addition to the Mortgage Loan Application (Form 1003).
*Alternatively, the most recent version of the Uniform Residential Appraisal Report (URAR) may be used. On or after November 2, 2026, Form 1007 will no longer be accepted. Appraisers are to use the most current version of the Uniform Residential Appraisal Report (URAR).
The PFI must retain the documentation in the loan file that was relied upon to determine the amount of eligible rent reported.
5.3.95.3.9 Other Sources of Income (6/3/26)
Updates effective on or after
September 1, 2026, related to this section, please review the
MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
5.3.9.15.3.9.1 Documentation Requirements for Current Receipt of Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The documentation required for each income source is described below. The documentation must support the history of receipt, if applicable, and the amount, frequency, and duration of the income. In addition, evidence of current receipt of the income must be obtained in compliance with the Age of Documents policy, unless specifically excluded below.
Current receipt may be documented by various means, depending on the income type. Examples include but are not limited to:
- current paystubs,
- bank statements confirming direct deposit,
- canceled checks from the payer’s account to the Borrower,
- court records, or
- copies of the Borrower’s bank statements showing the regular deposit of these funds.
Note: Any income received by the Borrower in the form of virtual currency, such as cryptocurrencies, is not eligible to be used to qualify for the mortgage loan. For income types that require sufficient remaining assets to establish continuance, those assets cannot be in the form of virtual currency.
5.3.9.25.3.9.2 Alimony, Child Support, or Separate Maintenance (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides verification requirements for alimony, child support, or separate maintenance.
| ✓ | Verification of Income From Alimony, Child Support, or Separate Maintenance |
|---|
| | Document that alimony, child support, or separate maintenance will continue to be paid for at least three years after the date of the mortgage application, as verified by one of the following: - A copy of a divorce decree or separation agreement (if the divorce is not final) that indicates the monthly payment and states the amount of the award and the period of time over which it will be received. Note: If a Borrower who is separated does not have a separation agreement that specifies alimony or child support payments, the PFI should not consider any proposed or voluntary payments as income.
- Any other type of written legal agreement or court decree describing the payment terms.
- Documentation that verifies any applicable state law that mandates alimony, child support, or separate maintenance payments, which must specify the conditions under which the payments must be made.
|
| | Check for limitations on the continuance of the payments, such as the age of the children for whom the support is being paid or the duration over which alimony is required to be paid. |
| | Document no less than six months of the Borrower’s most recent regular receipt of the full payment. |
| | Review the payment history to determine its suitability as stable qualifying income. To be considered stable income, full, regular, and timely payments must have been received for six months or longer. Income received for less than six months is considered unstable and may not be used to qualify the Borrower for the mortgage. In addition, if full or partial payments are made on an inconsistent or sporadic basis, the income is not acceptable for the purpose of qualifying the Borrower. |
Note: The PFI may include alimony, child support, or separate maintenance as income only if the Borrower discloses it on the loan application (Fannie Mae Form 1003/Freddie Mac Form 65) and requests that it be considered in qualifying for the loan.
5.3.9.35.3.9.3 Automobile Allowance (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
For an automobile allowance to be considered as acceptable stable income, the Borrower must have received payments for at least two years. The PFI must add the full amount of the allowance to the Borrower’s monthly income, and the full amount of the lease or financing expenditure to the Borrower’s monthly debt obligations.
5.3.9.45.3.9.4 Boarder Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
A boarder is a non-Borrower who currently lives in the Borrower's Primary Residence — not in a rental unit — in exchange for regular, timely rent payments. The MPF Program accepts Boarder income, PFIs may use Boarder income to qualify provided the income is expected to continue.
The following table provides verification requirements for income from boarders.
| ✓ | Verification of Income from Boarders |
|---|
| | Obtain documentation of the boarder’s history of shared residency (such as a copy of a driver’s license, bills, bank statements, or W-2 forms) that shows the boarder’s address as being the same as the Borrower’s address. |
| | Obtain documentation of the boarder’s rental payments for the most recent 12 months. |
5.3.9.55.3.9.5 Capital Gains Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
Income received from capital gains is generally a one-time transaction; therefore, it should not be considered as part of the Borrower’s stable monthly income. However, if the Borrower needs to rely on income from capital gains to qualify, the income must be verified in accordance with the following requirements.
| ✓ | Verification of Capital Gains Income |
|---|
| | Document a two-year history of capital gains income by obtaining copies of the Borrower’s signed federal income tax returns for the most recent two years, including IRS Form 1040, Schedule D. |
| | Develop an average income from the last two years and use the averaged amount as part of the Borrower’s qualifying income as long as the Borrower provides current evidence that he or she owns additional property or assets that can be sold if extra income is needed to make future mortgage loan payments.
Note: Capital losses identified on IRS Form 1040, Schedule D, do not have to be considered when calculating income or liabilities, even if the losses are recurring.
Due to the nature of this income, current receipt of the income is not required to comply with the Age of Documents policy. However, documentation of the asset ownership must be in compliance with the 5.1.3 Age of Documents. |
5.3.9.65.3.9.6 Disability Income – Long-Term (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides verification requirements for long-term disability income. It does not apply to disability income that is received from the Social Security Administration. See 5.3.9.23 Social Security Income for more information.
| ✓ | Verification of Long-Term Disability Income |
|---|
| | Obtain a copy of the Borrower’s disability policy or benefits statement from the benefits payer (insurance company, employer, or other qualified disinterested party) to determine: - the Borrower’s current eligibility for the disability benefits,
- the amount and frequency of the disability payments, and
- if there is a contractually established termination or modification date.
|
| | Generally, long-term disability will not have a defined expiration date and must be expected to continue. The requirement for re-evaluation of benefits is not considered a defined expiration date. If a Borrower is currently receiving short-term disability payments that will decrease to a lesser amount within the next three years because they are being converted to long-term benefits, the amount of the long-term benefits must be used as income to qualify the Borrower. For additional information on short-term disability, see 5.3.9.24 Temporary Leave Income. |
5.3.9.75.3.9.7 Employment Offers or Contracts (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
A Mortgage Loan may close prior to the Borrower beginning new employment and receiving income if the Borrower provided it meets the requirements in this section.
If the Borrower is scheduled to begin employment under the terms of an employment offer or contract, the PFI may deliver the loan in accordance with one of the options outlined below.
| ✓ | Option 1 -- Paystub Obtained Before Loan Delivery |
|---|
| | The PFI must obtain an executed copy of the Borrower's offer or contract for future employment and anticipated income.
Note: The Borrower cannot be employed by a family member or by an interested party to the transaction. |
| | Prior to delivering the mortgage loan, the PFI must obtain a paystub from the Borrower that includes sufficient information to support the income used to qualify the Borrower based on the offer or contract. The paystub must be retained in the mortgage loan file. |
| ✓ | Option 2 -- Paystub Not Obtained Before Loan Delivery |
|---|
| | This option is limited to loans that meet the following criteria: - purchase transaction,
- principal residence,
- one-unit property,
- the Borrower is not employed by a family member or by an interested party to the transaction, and
- the Borrower is qualified using only fixed base income.
|
| | The PFI must obtain and review the Borrower’s offer or contract for future employment. The employment offer or contract must: - clearly identify the employer and the Borrower, be signed by the employer, and be accepted and signed by the Borrower;
- clearly identify the terms of employment, including position, type and rate of pay, and start date; and
- be non-contingent.
Note: If conditions of employment exist, the PFI must confirm prior to closing that all conditions of employment are satisfied either by verbal verification or written documentation. This confirmation must be noted in the mortgage loan file. Also note that for a union member who works in an occupation that results in a series of short-term job assignments (such as a skilled construction worker, longshoreman, or stagehand), the union may provide the executed employment offer or contract for future employment. |
| | The Borrower’s start date must be no earlier than 30 days prior to the Note date or no later than 90 days after the Note date.
Prior to delivery, the PFI must obtain the following documentation depending on the Borrower’s employment start date: | If the Borrower’s start date is... | Documentation Required |
|---|
| The note date or no more than 30 days prior to the note date | - Employment offer or contract; and
- Verbal verification of employment that confirms active employment status
| | No more than 90 days after the Note date | Employment offer or contract | | | The PFI must document, in addition to the amount of reserves required for the transaction, one of the following: - Financial reserves sufficient to cover principal, interest, taxes, insurance, and association dues (PITIA) for the subject property for six months; or
- Financial resources sufficient to cover the monthly liabilities included in the debt-to-income ratio, including the PITIA for the subject property, for the number of months between the note date and the employment start date, plus one. For calculation purposes, consider any portion of a month as a full month.
Financial resources may include: - financial reserves, and
- current income.
Current income refers to net income that is currently being received by the Borrower (or co-Borrower), may or may not be used for qualifying, and may or may not continue after the Borrower starts employment under the offer or contract. For this purpose, the PFI may use the amount of income the Borrower is expected to receive between the note date and the employment start date. If the current income is not being used or is not eligible to be used for qualifying purposes, it can be documented by the PFI using income documentation, such as a paystub, but a verification of employment is not required. |
|
5.3.9.85.3.9.8 Employment-Related Assets as Qualifying Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides the requirements for employment-related assets that may be used as qualifying income.
| ✓ | Asset Requirements |
|---|
| | Assets used for the calculation of the monthly income stream must be owned individually by the Borrower, or the co-owner of the assets must be a co-Borrower of the mortgage loan.
The documentation must be in compliance with the Age of Documents policy. |
| | Assets must be liquid and available to the Borrower and must be sourced as one of the following: - A non-self-employed severance package or non-self-employed lump sum retirement package (a lump sum distribution) — these funds must be documented with a distribution letter from the employer (Form 1099–R) and deposited to a verified asset account.
- For 401(k) or IRA, SEP, Keogh retirement accounts – the Borrower must have unrestricted access to the funds in the accounts and can only use the accounts if distribution is not already set up or the distribution amount is not enough to qualify. The account and its asset composition must be documented with the most recent monthly, quarterly, or annual statement.
|
| | If a penalty would apply to a distribution of funds from the account made at the time of calculation, then the amount of such penalty applicable to a complete distribution from the account (after costs for the transaction) must be subtracted to determine the income stream from these assets. |
| | A Borrower must only be considered to have unrestricted access to a 401(k) or IRA, SEP, Keogh retirement account if the Borrower has, as of the time of calculation, the unqualified and unlimited right to request a distribution of all funds in the account (regardless of any possible tax withholding or applicable penalty applied to such distribution). |
| | “Net documented assets” are equal to the sum of eligible assets minus: (a) the amount of the penalty that would apply if the account was completely distributed at the time of calculation; and
(b) the amount of funds used for down payment, closing costs, and required reserves. |
| | Ineligible assets are non-employment-related assets (for example, stock options, non-vested restricted stock, lawsuits, lottery winnings, sale of real estate, inheritance, and divorce proceeds). Checking and savings accounts are generally not eligible as employment-related assets, unless the source of the balance in a checking or savings account was from an eligible employment-related asset (for example, a severance package or lump sum retirement distribution). Virtual currency is not an eligible asset. |
| | If eligible employment-related assets have been liquidated and placed into a trust within 12 months of the mortgage loan's application date, income must be calculated in accordance with the requirements in this table. | Example: Calculation of Net Documented Assets | | IRA (made up of stocks and mutual funds) | $500,000 | Minus 10% of $500,000 ($500,000 x .10)
(Assumes a 10% penalty applies for early distribution, which must be levied against any cash being withdrawn for closing the transaction as well as the remaining funds used to calculate the income stream.) | (-) $50,000 | | Total eligible documented assets | (=) $450,000 | Minus funds required for closing
(down payment, closing costs, reserves) | (-) $100,000 | | Net Documented Assets | (=) $350,000 | Monthly income calculation
($350,000/360 (or applicable term of loan in months))
See Income Calculation/Payout Stream in table below. | $972.22/
month |
|
| | |
All of the following loan parameters must be met in order for employment-related assets to be used as qualifying income:
| Loan Parameter | Requirement |
|---|
| Maximum LTV, CLTV, and HCLTV Ratio | 70%
80% if the owner of the asset(s) being used to qualify is at least 62 years old at the time of closing. If the asset(s) is jointly owned, all owners must be a Borrower on the loan and the Borrower using the income to qualify must be at least 62 years old at the time of closing. |
| Loan Purpose | Purchase and limited cash-out refinance only |
| Occupancy | Principal residence and second home only |
| Number of Units | As permitted by occupancy type |
| Income Calculation/Payout Stream | Divide “Net Documented Assets” by the amortization term of the mortgage loan (in months). |
Note: If the mortgage loan does not meet the above parameters, employment-related assets may still be eligible under other standard income guidelines, such as “Interest and Dividends Income,” or “Retirement, Government Annuity, and Pension Income.”
5.3.9.95.3.9.9 Foreign Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
Foreign income is income that is earned by a Borrower who is employed by a foreign corporation or a foreign government and is paid in foreign currency. Borrowers may use foreign income to qualify if the following requirements are met.
| ✓ | Verification of Foreign Income |
|---|
| | Copies of signed federal income tax returns for the most recent two years that include foreign income. |
| | The PFI must satisfy the standard documentation requirements based on the source and type of income as outlined in Income Assessment.
All documents of a foreign origin must be completed in English, or the Originator must provide a translation, attached to each document, and ensure the translation is complete and accurate.
Note: All income must be translated to U.S. dollars. |
5.3.9.105.3.9.10 Foster-Care Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
Income received from a state- or county-sponsored organization for providing temporary care for one or more children may be considered acceptable stable income if the following requirements are met.
| ✓ | Verification of Foster-Care Income |
|---|
| | Verify the foster-care income with letters of verification from the organizations providing the income. |
| | Document that the Borrower has a two-year history of providing foster-care services. If the Borrower has not been receiving this type of income for two full years, the income may still be counted as stable income if: - the Borrower has at least a 12-month history of providing foster-care services, and
- the income does not represent more than 30% of the total gross income that is used to qualify for the mortgage loan.
|
5.3.9.115.3.9.11 Housing or Parsonage Allowance (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
A housing or parsonage allowance may be considered qualifying income if there is documentation that it has been received for the most recent 12 months and the allowance is likely to continue for the next three years. The housing allowance may be added to income but may not be used to offset the monthly housing payment.
Note: This requirement does not apply to military quarters’ allowance. For information on military housing, refer to 5.3.3 Base Pay (Salary or Hourly), Bonus, and Overtime Income.
5.3.9.125.3.9.12 Interest and Dividends (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides verification requirements for interest and dividends income.
| ✓ | Verification of Income From Interest and Dividends |
|---|
| | Verify the Borrower’s ownership of the assets on which the interest or dividend income was earned. Documentation of asset ownership must be in compliance with the Age of Documents policy. |
| | Document a two-year history of the income, as verified by: - copies of the Borrower's signed federal income tax returns, or
- copies of account statements.
|
| | Develop an average of the income received for the most recent two years. Refer to the 5.3.1.2 Variable Income, for additional information. |
| | Subtract any assets used for down payment or closing costs from the Borrower’s total assets before calculating expected future interest or dividend income. |
5.3.9.135.3.9.13 Mortgage Credit Certificates (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
States and municipalities can issue mortgage credit certificates (MCCs) in place of, or as part of, their authority to issue mortgage revenue bonds. MCCs enable an eligible first-time homebuyer to obtain a mortgage secured by his or her principal residence and to claim a federal tax credit for a specified percentage (usually 20% to 25%) of the mortgage interest payments.
When calculating the Borrower’s DTI ratio, treat the maximum possible MCC income as an addition to the Borrower’s income, rather than as a reduction to the amount of the Borrower’s mortgage payment. Use the following calculation when determining the available income:
[(Mortgage Amount) x (Note Rate) x (MCC %)] ÷ 12 = Amount added to Borrower’s monthly income. For example, if a Borrower obtains a $100,000 mortgage that has a note rate of 7.5% and he or she is eligible for a 20% credit under the MCC program, the amount that should be added to his or her monthly income would be $125 ($100,000 x 7.5% x 20% = $1500 ÷ 12 = $125).
The PFI must obtain a copy of the MCC and the PFI documented calculation of the adjustment to the Borrower’s income and include them in the mortgage loan file.
For refinance transactions, the PFI may allow the MCC to remain in place as long as it obtains confirmation prior to loan closing from the MCC provider that the MCC remains in effect for the new mortgage loan. Copies of the MCC documents, including the reissue certification, must be maintained in the new mortgage loan file.
Note: Because the MCC is transaction specific, it does not have to comply with the Age of Documents policy.
5.3.9.145.3.9.14 Mortgage Differential Payments Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
An employer may subsidize an employee’s mortgage payments by paying all or part of the interest differential between the employee’s present and proposed mortgage payments.
When calculating the qualifying ratio, the differential payments should be added to the Borrower’s gross income.
The payments may not be used to directly offset the mortgage payment, even if the employer pays them to the mortgage PFI rather than to the Borrower.
The following table provides verification requirements for mortgage differential payment income.
| ✓ | Verification of Income from Mortgage Differential Payments |
|---|
| | Obtain written verification from the Borrower’s employer confirming the subsidy and stating the amount and duration of the payments. |
| | Verify that the income can be expected to continue for a minimum of three years from the date of the mortgage application.
If this income is used on a purchase transaction, current receipt is not required to be documented except as verified in the employer letter. For refinance transactions where the income is continuing with the new loan, the recent receipt must be in compliance with the Age of Documents. |
5.3.9.155.3.9.15 Non-Occupant Borrower Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
Income from a non-occupant Borrower may be considered as acceptable qualifying income. This income can offset certain weaknesses that may be in the occupant Borrower’s loan application, such as limited income, financial reserves, or limited credit history. However, it may not be used to offset significant or recent instances of major derogatory credit in the occupant Borrower’s credit history. The occupant Borrower must still reasonably demonstrate a willingness to make the mortgage payments and maintain homeownership. If the income from a non-occupant Borrower is used for qualifying, subject to the LTV requirements in 3.1.4 Non-Occupant Co-Borrower.
5.3.9.165.3.9.16 Notes Receivable Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides verification requirements for Notes receivable income.
| ✓ | Verification of Income from Notes Receivable |
|---|
| | Verify that the income can be expected to continue for a minimum of three years from the date of the mortgage application. |
| | Obtain a copy of the note to establish the amount and length of payment. |
| | Document regular receipt of income for the most recent 12 months.
Payments on a note executed within the past 12 months, regardless of the duration, may not be used as stable income. |
5.3.9.175.3.9.17 Public Assistance Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides verification requirements for public assistance income.
| ✓ | Verification of Public Assistance Income |
|---|
| | Document the Borrower’s receipt of public assistance income with letters or exhibits from the paying agency that state the amount, frequency, and duration of the benefit payments. |
| | Verify that the income can be expected to continue for a minimum of three years from the date of the mortgage application. |
The Housing Choice Voucher Program (more commonly known as Section 8) is also an acceptable source of qualifying income. There is no requirement for the Section 8 voucher payments to have been received for any period of time prior to the date of the mortgage application or for the payments to continue for any period of time from the date of the mortgage application.
| ✓ | Verification of Section 8 Payment Vouchers |
|---|
| | Determine the monthly payment amount from the public agency that issues the voucher. Because this income is nontaxable, the PFI can develop an adjusted gross income for the Borrower in accordance to this Guide. |
5.3.9.185.3.9.18 Income from Unemployment Benefits (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
Income from unemployment benefits and any income from an employer-initiated action (such as furlough or layoff) are typically short-term in nature and can be considered when qualifying the Borrower in the following scenarios:
- The income has been consistently received for at least two years as verified by copies of the signed federal income tax returns that reflect the unemployment income is associated with seasonal employment.
- The income from unemployment benefits can be used in the calculation of financial resources that are required under Option 2 in Employment Offers or Contracts above.
5.3.9.195.3.9.19 Restricted Stock Units and Restricted Stock Employment Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
Restricted stock units and restricted stock (referred to collectively as "restricted stock") are granted by an employer to its employees as a form of compensation based on either performance or time. They can be awarded as either stock or an equivalent cash value of the number of shares awarded and usually vest over a certain number of years. After they vest, the employee may sell the shares at the current price or hold the stock for future sale.
The following table provides verification requirements for restricted stock income.
| ✓ | Verification of Restricted Stock Income |
| |
|---|
| | To be used as qualifying income, the restricted stock must have vested and been distributed to the borrower without restrictions.
For performance-based awards: A minimum history of 24 months restricted stock income from the current employer is recommended. Restricted stock income received for 12 to 24 months from the current employer may be considered as acceptable income if there are positive factors to offset the shorter income history such as: - future vesting equal to or greater than previous vesting and that will continue for at least 24 months; or
- restricted stock income received for the previous 5 years from any employer.
For time-based awards: A minimum history of 12 months restricted stock income from the current employer is required.
The PFI must confirm continuance of income pursuant to 5.3.1.3 Continuity of Income. |
|---|
|
| | PFIs must document all the following: - evidence stock is publicly traded;
- current vesting schedule reflecting past and future vesting;
- brokerage or bank statement showing receipt of previous year(s) distribution of restricted stock and, at a minimum, the number of vested shares or cash equivalent;
- a completed Verification of Employment that shows restricted stock distributions, or the borrowers recent paystub showing receipt of restricted stock income; and
- the borrower's IRS W-2 forms covering the most recent two-year period.
The calculation method for restricted stock income will vary depending on whether payment is made in shares or cash. For income paid in shares: - (200-Day Moving Average of share price x total number of distributed vested shares (pre-tax) in most recent 24 months) /24 months
For income paid in cash: - Total cash distributed (pre-tax) equal to the value of vested shares in the most recent 24 months /24 months
Note: When the borrower has a history of income ranging from 12-24 months, the PFI must use the actual number of months the borrower has received the income rather than 24 months. See section 5.3.1.2 Variable Income in for additional information about calculating variable income. |
5.3.9.205.3.9.20 Retirement, Government Annuity, and Pension Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides verification requirements for retirement, government annuity, and pension income.
| ✓ | Verification of Retirement, Government Annuity, and Pension Income |
|---|
| | Document current receipt of the income, as verified by: - a statement from the organization providing the income,
- a copy of retirement award letter or benefit statement,
- a copy of financial or bank account statement,
- a copy of signed federal income tax return,
- an IRS W-2 form, or
- an IRS 1099 form.
|
| | If income from a government annuity or a pension account will begin on or before the first payment date, document the income with a benefit statement from the organization providing the income. The statement must specify the income type, amount and frequency of the payment, and include confirmation of the initial start date. |
| | If retirement income is paid in the form of a distribution from a 401(k), IRA, or Keogh retirement account, determine whether the income is expected to continue for at least three years after the date of the mortgage application. Eligible retirement account balances (from a 401(k), IRA, or Keogh) may be combined for the purpose of determining whether the three-year continuance requirement is met. Note: The Borrower must have unrestricted access to the accounts without penalty. |
5.3.9.215.3.9.21 Royalty Payment Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides verification requirements for royalty income.
| ✓ | Verification of Income from Royalty Payments |
|---|
| | Obtain copies of the: - royalty contract, agreement, or statement confirming amount, frequency, and duration of the income; and
- Borrower’s most recent signed federal income tax return, including the related IRS Form 1040, Schedule E.
|
| | Confirm that the Borrower has received royalty payments for at least 12 months and that the payments will continue for a minimum of three years after the date of the mortgage application. |
5.3.9.225.3.9.22 Schedule K-1 Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides verification of income requirements for Borrowers with less than 25% ownership of a partnership, an S corporation, or an LLC. For borrowers who have more than 25% ownership, PFIs must follow the verification of income requirements for self-employed borrowers. See 5.4.1 Underwriting Factors and Documentation for a Self-employed Borrower.
| ✓ | Verification of Schedule K-1 Income |
|---|
| | The borrower must provide the most recent two years of: - signed individual federal income tax returns, and
- IRS Schedule K-1.
|
| | Income reported on Schedule K-1 can only be considered if the PFI obtains documentation verifying that: - the income was actually distributed to the borrower and is consistent with the level of business income being used to qualify, or
- the business has adequate liquidity to support the withdrawal of earnings. The PFI may use discretion in the method used to confirm the business has adequate liquidity.
|
| | The PFI is not required to analyze the viability of the business in accordance with self-employment requirements and may only use the borrower's proportionate share of earnings reflected on Schedule K-1 when calculating the borrower's income. |
| | If the Borrower has a two-year history of receiving “guaranteed payments to the partner” from a partnership or an LLC, these payments can be added to the Borrower’s cash flow. Note: An exception to the two-year requirement of receiving “guaranteed payments to the partner” is if a Borrower has recently acquired nominal ownership in a professional services partnership (for example, a medical practice or a law firm) after having an established employment history with the partnership. In this situation, the PFI may rely on the Borrower’s guaranteed compensation. This must be evidenced by the Borrower’s partnership agreement and further supported by evidence of current year-to-date income. |
5.3.9.235.3.9.23 Social Security Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides verification requirements for Social Security income.
| ✓ | Verification of Social Security Income |
|---|
| | Social Security income for retirement or long-term disability that the Borrower is drawing from their own account/work record will not have a defined expiration date and must be expected to continue.
Social Security income based on another person's account/work record or from the Borrower's own work record, but for the benefit of another (such as a dependent) may also be used in qualifying, provided the PFI documents a 3-year continuance. |
| | Document regular receipt of payments, as verified by the following, depending on the type of benefit and the relationship of the beneficiary (self or other) as shown in the table below. |
| Documentation Requirements |
|---|
| Type of Social Security benefit | Borrower is drawing Social Security benefits from own account/work record 1 | Borrower is drawing Social Security benefits from another person’s account/work record or from their own account/work record for the benefit of another2 |
| Retirement | - Social Security Administration's (SSA) Award letter,
- SSA-1099,
- Most recent signed federal income tax returns (or tax transcripts3), or
- Proof of current receipt
| - SSA Award letter,
- Proof of current receipt, and
- Three-year continuance4
|
| Disability | - SSA Award letter,
- SSA-1099,
- Most recent signed federal income tax returns (or tax transcripts3), or
- Proof of current receipt
| - SSA Award letter,
- Proof of current receipt, and
- Three-year continuance4
|
| Survivor benefits | NA | - SSA Award letter,
- Proof of current receipt, and
- Three-year continuance4
|
| Supplement Security Income (SSI) | - SSA Award letter, and
- Proof of current receipt
| NA |
1 An SSA Award letter may be used to document the income if the Borrower is receiving Social Security payments or if the Borrower will begin receiving payments on or before the first payment date of the subject mortgage as confirmed by a recently issued award letter.
2 Examples of how a Borrower might draw Social Security benefits from another person’s account/work record and use the income for qualifying:
- A Borrower may be eligible for benefits from a spouse, ex-spouse, or dependent parents (the benefit is paid to the Borrower on behalf of the spouse, etc.); or
- A Borrower may use Social Security income received by a dependent (a minor or disabled dependent).
3 If joint tax returns or tax transcripts include income that is not associated with a Borrower on the loan transaction, the PFI must obtain additional documentation supporting the amount of income from the SSA being used in qualifying, such as the SSA-1099.
4 Confirmation of three-year continuance does not require documentation that provides a defined expiration date and can be assessed by verifying the SSA's requirements related to the specific benefit(s) being paid. For example, if the SSA ties receipt of the benefits to the beneficiary's age, confirmation of a three-year continuance can be met by verifying that the beneficiary's age supports that benefit(s) will continue for at least three years from the date of the loan application.
5.3.9.245.3.9.24 Temporary Leave Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
Temporary leave from work is generally employee-initiated short in duration and for reasons of maternity or parental leave, short-term medical disability, or other temporary leave types that are acceptable by law or the Borrower's employer. Borrowers on temporary leave may or may not be paid during their absence from work.
Note: Mandatory leave initiated by an employer, such as a furlough or layoff, is not considered temporary leave regardless of an expected return to work date. For income from unemployment benefits received as a result of mandatory leave initiated by an employer, see Public Assistance Income above.
If a PFI is made aware that a Borrower will be on temporary leave at the time of closing of the mortgage loan and that Borrower's income is needed to qualify for the mortgage loan, the PFI must determine allowable income and confirm employment as described below.
| ✓ | Temporary Leave -- Employment Requirements |
|---|
| | The Borrower's employment and income history must meet standard eligibility requirements as described in this Guide. |
| | The Borrower must provide written confirmation of his or her intent to return to work. |
| | The PFI must document the Borrower’s agreed-upon date of return by obtaining, either from the Borrower or directly from the employer (or a designee of the employer when the employer is using the services of a third party to administer employee leave), documentation evidencing such date that has been produced by the employer or by a designee of the employer. Examples of the documentation may include, but are not limited to, previous correspondence from the employer or designee that specifies the duration of leave or expected return date or a computer printout from an employer or designee’s system of record. (This documentation does not have to comply with the Age of Documents policy.) |
| | The PFI must receive no evidence or information from the Borrower's employer indicating that the Borrower does not have the right to return to work after the leave period. |
| | The PFI must obtain a verbal verification of employment in accordance with 5.3.7 Verbal Verification of Employment. If the employer confirms the Borrower is currently on temporary leave, the PFI must consider the Borrower employed. |
| | The PFI must verify the Borrower's income in accordance with 5.3 Income Assessment. The PFI must obtain; - the amount and duration of the Borrower's “temporary leave income,” which may require multiple documents or sources depending on the type and duration of the leave period; and
- the amount of the “regular employment income” the Borrower received prior to the temporary leave. Regular employment income includes, but is not limited to, the income the Borrower receives from employment on a regular basis that is eligible for qualifying purposes (for example, base pay, commissions, and bonus).
Note: Income verification may be provided by the Borrower, by the Borrower's employer, or by a third-party employment verification vendor. |
Requirements for Calculating Income Used for Qualifying
If the Borrower will return to work as of the first mortgage payment date, the PFI can consider the Borrower's regular employment income in qualifying.
If the Borrower will not return to work as of the first mortgage payment date, the PFI must use the lesser of the Borrower's temporary leave income (if any) or regular employment income. If the Borrower's temporary leave income is less than his or her regular employment income, the PFI may supplement the temporary leave income with available liquid financial reserves (see Minimum Reserve Requirements). Following are instructions on how to calculate the “supplemental income”:
Supplemental income amount = available liquid reserves divided by the number of months of supplemental income
- Available liquid reserves: subtract any funds needed to complete the transaction (down payment, closing costs, other required debt payoff, escrows, and minimum required reserves) from the total verified liquid asset amount.
- Number of months of supplemental income: the number of months from the first mortgage payment date to the date the Borrower will begin receiving his or her regular employment income, rounded up to the next whole number.
After determining the supplemental income, the PFI must calculate the total qualifying income.
Total qualifying income = supplemental income plus the temporary leave income
The total qualifying income that results may not exceed the Borrower's regular employment income.
Example:
Regular income amount: $6,000 per month
Temporary leave income: $2,000 per month
Total verified liquid assets: $30,000
Funds needed to complete the transaction: $18,000
Available liquid reserves: $12,000
First payment date: July 1
Date Borrower will begin receiving regular employment income: November 1
Supplemental income: $12,000/4 = $3,000
Total qualifying income: $3,000 + $2,000 = $5,000
Note: These requirements apply if the PFI becomes aware through the employment and income verification process that the Borrower is on temporary leave. If a Borrower is not currently on temporary leave, the PFI must not ask if he or she intends to take leave in the future.
5.3.9.255.3.9.25 Tip Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides verification requirements for tip income.
| ✓ | Verification of Tip Income |
|---|
| | Obtain the following documents: - a completed Request for Verification of Employment (Form 1005 or Form 1005(S)), or
- the Borrower’s recent paystub, and
- IRS W-2 forms covering the most recent two-year period or the most recent two years tax returns with IRS Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to verify tips not reported by the employer.
See 5.3.2 Standards for Employment Documentation, for additional information. |
| | Tip income may be used to qualify the Borrower if the PFI verifies that the Borrower has received it for the last two years. |
| | The PFI must determine the amount of tip income that may be considered in qualifying the Borrower. Refer to 5.3.1.2 Variable Income section for additional information. |
5.3.9.265.3.9.26 Trust Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides verification requirements for trust income.
| ✓ | To verify trust income the PFI must… |
|---|
| | Obtain one or more of the following trust verification documents to confirm the amount, frequency, type of income being received, and the date the trust was created: - Copy of the trust agreement,
- The trustee’s statement,
- The trust’s federal income tax returns, or
- A letter from an accountant or attorney who reviewed the trust documents, when the above documents are not available or when the Borrower is the trustee.
Note: A borrower who is also a trustee may not supply the trustee’s statement. Confirm the trust was established for 12 months or longer, unless the following requirements are met: - The trust verification documentation reflects fixed payments,
- The Borrower is not the grantor, and
- At least one payment is received prior to closing.
Trusts created in the previous 12 months using a borrower's eligible employment-related assets, as defined in 5.3.9.8 Employment-Related Assets as Qualifying Income, may still be used as stable income but must meet the income calculation and all other requirements in Employment-Related Assets as Qualifying Income. |
| | Confirm continuance of income per Continuity of Income in 5.3.1 General Income Information. This confirmation must be based on the type of income received through the trust.
For example, if the income from the trust is derived from rental income, then three-year continuance is not required. However, if the income is a fixed payment derived from a depleting asset, then three-year continuance must be determined. If any assets from the trust are being used for down payment, closing costs, or reserves, those assets must be subtracted from the total amount before determining if the trust income meets the Continuity of Income requirements.
If eligible employment-related assets have been liquidated and placed into a trust within 12 months of the loan's application date, the income calculation requirements in 5.3.9.8 Employment-Related Assets as Qualifying Income apply.
| Requirements for Trust with Fixed Payments | Requirements for Trust with Variable Payments |
|---|
Use the fixed payment amount from the trust verification documentation as the Borrower's qualifying income, converting it to a monthly amount, as applicable. Document current receipt of trust income with one month's bank statement or other equivalent documentation.
| Calculate the qualifying income amount per Variable Income in 5.3.1 General Income Information.
Document the following: - A minimum 24-month history of trust income by obtaining copies of the borrower's signed federal tax income tax returns for the most recent two years, and
- Current receipt of trust income with one month's bank statement or other equivalent documentation.
Note: Income received for 12 to 24 months may be considered as acceptable income when other positive factors are present that reasonably offset a shorter income history.
| |
5.3.9.275.3.9.27 VA Benefits Income (6/3/26)
Updates effective on or after September 1, 2026, related to this section, please review the MPF Traditional Selling Guide. This guide will contain the most current information and requirements.
The following table provides verification requirements for income from VA benefits.
Note: Education benefits are not acceptable income because they are offset by education expenses.
| ✓ | Verification of VA Benefits Income |
|---|
| | Document the Borrower’s receipt of VA benefits with a letter or distribution form from the VA. |
| | Verify that the income can be expected to continue for a minimum of three years from the date of the mortgage application. (Verification is not required for VA retirement or long-term disability benefits.) |
