Selling Guide

Published April 07, 2021

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What income types require a three year continuance?

Continuity of Income

A key driver of successful homeownership is confidence that all income used in qualifying the borrower will continue to be received by the borrower for the foreseeable future. Unless the lender has knowledge to the contrary, 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 lender may conclude that the income is stable, predictable, and likely to continue. The lender is not expected to request additional documentation from the borrower.

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 lender must document the likelihood of continued receipt of the income for at least three years.

If the lender is notified that the borrower is transitioning to a lower pay structure, for example due to pending retirement, the lender must use the lower amount to qualify the borrower.

The following table contains examples of income types with and without defined expiration dates. This information is provided to assist lenders in determining whether additional income documentation may be necessary to support a three-year continuance. Note that lenders remain responsible for making the final determination of whether the borrower’s specific income source has a defined expiration date.

Expiration Date Not Defined Defined Expiration Date*

Lender does not need to document 3–year continuance

  • automobile allowance

  • base salary

  • bonus, overtime, commission, or tip income

  • capital gains income

  • corporate retirement or pension

  • disability income — long-term

  • foster-care income

  • interest and dividend income (unless other evidence that asset will be depleted)

  • military income

  • mortgage credit certificates

  • part-time job, second job, or seasonal income

  • rental income

  • self-employment income

  • Social Security, VA, or other government retirement or annuity

Lender must document 3–year continuance

  • alimony, child support, or separate maintenance

  • distributions from a retirement account – for example, 401(k), IRA, SEP, Keogh

  • mortgage differential payments

  • notes receivable

  • public assistance

  • royalty payment income

  • Social Security (not including retirement or long-term disability)

  • trust income

  • VA benefits (not including retirement or long-term disability)

*Because these income sources have a defined expiration date or allow the depletion of an asset, care must be taken when this is the sole source or majority of qualifying income. Lenders must consider the borrower’s continued capacity to repay the mortgage loan when the income source expires or the distributions will deplete the asset prior to maturation of the mortgage loan.

Income sources that are not listed above will require lender judgment to determine if documentation of continuance must be obtained.

For additional information, see B3-3.1-01, General Income Information.

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