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B3-3.1-03, Base Pay (Salary or Hourly), Bonus, and Overtime Income (11/03/2021)

Introduction
This topic contains information on base pay (salary and hourly), bonus, and overtime income, including:

Verification of Base Pay, Bonus, and Overtime Income

The following table provides verification requirements for base pay, bonus, and overtime income:

✓ Verification of Base Pay, Bonus, and Overtime Income
  A minimum history of two years of employment income is recommended. However, income that has been received for a shorter period of time may be considered as acceptable income, as long as the borrower’s employment profile demonstrates that there are positive factors to reasonably offset the shorter income history.

Borrowers relying on overtime or bonus income for qualifying purposes must have a history of no less than 12 months to be considered stable.
  Base Pay (Salary and Hourly):

Obtain the following documents:

  • a completed Request for Verification of Employment (Form 1005), or

  • the borrower’s recent paystub and IRS W-2 forms covering the most recent two-year period.
  Bonus or Overtime:

Obtain the following documents:

  • a completed Form 1005, or

  • the borrower’s recent paystub and IRS W-2 forms covering the most recent two-year period.
  See B3-3.1-01, General Income InformationB3-3.1-01, General Income Information, for additional information on calculating variable income (applies to hourly paid employees with fluctuating hours and bonus and overtime).
  If the borrower has recently changed positions with their employer, determine the effect of the change on the borrower’s eligibility and opportunity to receive bonus or overtime pay in the future.
  If a borrower who has historically been employed on a part-time basis indicates that they are now working full-time, obtain written confirmation from the borrower’s employer.
  A verbal VOE is required from each employer. See B3-3.1-07, Verbal Verification of EmploymentB3-3.1-07, Verbal Verification of Employment, for specific requirements.
  See B3-3.1-02, Standards for Employment DocumentationB3-3.1-02, Standards for Employment Documentation, for additional information about verifying employment income.

Base Income Calculation Guidelines

After the applicable income documentation has been obtained, the lender must calculate the borrower’s eligible qualifying base income. The following table provides guidance for standard employment documentation:

How Often Paid How to Determine Monthly Income
Annually Annual gross pay / 12 months
Monthly Use monthly gross payment amount
Twice Monthly Twice monthly gross pay x 2 pay periods
Biweekly (Biweekly gross pay x 26 pay periods) / 12 months
Weekly (Weekly gross pay x 52 pay periods) / 12 months
Hourly (Hourly gross pay x average # of hours worked per week x 52 weeks) / 12 months
All of the above calculations must be compared with the documented year-to-date base earnings (and past year earnings, if applicable) to determine if the income amount appears to be consistent. See B3-3.1-01, General Income InformationB3-3.1-01, General Income Information, for additional information about variable income (bonus and overtime).

Military Income

Military personnel may be entitled to different types of pay in addition to their base pay. Flight or hazard pay, rations, clothing allowance, quarters’ allowance, and proficiency pay are acceptable sources of stable income, as long as the lender can establish that the particular source of income will continue to be received in the future. To verify military base pay and entitlements, the lender must obtain the borrower's most recent Leave and Earnings Statement (LES).

Income paid to military reservists while they are satisfying their reserve obligations also is acceptable if it satisfies the same stability and continuity tests applied to secondary employment.

Recent Related Announcements

The table below provides references to recently issued Announcements that are related to this topic.

Announcements Issue Date
Announcement SEL-2021-10 November 03, 2021

 

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