B3-3.3-02, Bonus, Commission, Overtime, and Tip Income (03/04/2026)

The lender 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 B3-3.1-04, Verbal Verification of EmploymentB3-3.1-04, 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.

The lender 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 lender 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 lender 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 lender 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 lender 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 lender may exclude that period from the income calculation.