This topic contains information on the standards for documentation of employment income, including:
The lender 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.
The following table provides requirements for documentation provided by the borrower.
|✓||Requirements — Paystubs and W–2s|
|The 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 paystub must include sufficient information to appropriately calculate income; otherwise, additional documentation must be obtained.
Paystubs must comply with B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns.
|IRS W-2 forms must cover the most recent one- or two-year period, based on the documentation requirements for the particular income type. The W-2 forms 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 (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 documents must clearly identify the borrower as the employee.|
|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.|
|✓||Requirements — Tax Returns|
|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 lender may obtain applicable transcripts of federal income tax returns. See B3-3.1-06, Requirements and Uses of IRS IVES Request for Transcript of Tax Return Form 4506-C.
“Most recent” tax return is defined as the last return scheduled to have been filed with the IRS. See B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns.
|The information must be complete and legible.|
|Each tax return must be signed by the borrower unless the lender has obtained one of the following signature alternatives:
The lender may use the Request for Verification of Employment (Form 1005 or Form 1005(S)) to document income for a salaried or commissioned borrower. The date of the completed form must comply with B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns.
The information on the Form 1005 or Form 1005(S) 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. For example, overtime may not be completed if the borrower is in a position that does not pay overtime.
When the borrower authorizes the lender to obtain verifications of employment and income directly from the employer, the lender must have the borrower sign Form 1005 or Form 1005(S).
Alternatively, the lender may have the applicant sign a signature authorization form, which gives the lender blanket authorization to request the information it needs to evaluate the applicant’s creditworthiness (see B1-1-02, Blanket Authorization Form).
The lender 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 lender to use this verification method,
the date of the completed verification is in compliance with B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns,
the lender has determined that the vendor has made provisions to comply with reasonable quality control requests from both the lender and any subsequent mortgagee, and
the lender understands it will be held accountable for the integrity of the information obtained from this source.
If necessary, the lender must supplement these verifications by obtaining any missing information from the borrower or his or her employer.
Loans that are submitted through the DU validation service must comply with all requirements pertaining to the DU validation service. See B3-2-02, DU Validation Service.