Ask the Underwriter is a regular column for HousingWire's new LendingLife newsletter, addressing real questions asked to, and answered by, professional mortgage underwriter, Dani Hernandez.
Question:
I have a borrower who wants to buy a primary residence using conventional financing. He has been employed through a staffing agency for the last two years as a temporary employee. The staffing agency has put him on assignments working for three different companies but his current assignment has been with the same major shipping company for the past year. The staffing agency completed a WVOE but they would could not guarantee that his employment with the shipping company would continue for the next three years. They did comment that there is no set end date for his assignment but that if and when it did end, he would be put on a new assignment. Can this income be included in his monthly qualifying income even though it is technically temp work and its not guaranteed to continue for the next three years?
Answer:
YES! You can absolutely use income from a temp job to qualify your borrower for a conventional mortgage. And, what’s better is that I am going to tell you how to package and submit this loan to your underwriter so that it doesn't come out of underwriting with a s#!% ton of stips related to income continuity, stability and predictability, that aren’t actually required by Fannie Mae.
The secret to getting a clean approval from an Underwriter on this file (or any other for that matter) is to include a brief summary and explanation of any loan characteristics that are “unusual”. You know, all those oddities about a particular loan that you secretly hope the underwriter will overlook… that’s what we want to know about. Nothing will make an underwriter want to throw the book at a file, like having to waste hours piecing together a puzzle and finding out you had the missing pieces in your pocket all along. Instead, think of the underwriter as your loan therapist… you tell me your problems and I’ll help you solve them!
Income and Employment Documentation Checklist:
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Explanation regarding the borrower’s income and employment history
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Tell your underwriter exactly what you told me
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WVOE from the Staffing Agency
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Tax Returns and W2s for the most recent two year period
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The AUS Findings may stipulate you only need to provide the most recent year, but include two years anyway – this will help the underwriter verify that the borrower’s income has been consistent while employed by the staffing agency.
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Paystubs covering the most recent 30 day period
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This lends additionally credibility by showing that the borrower works roughly the same amount of hours each pay period.
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If you submit all of these items and the underwriter still comes back with a bunch of nonsensical income and employment conditions… Send them an email with an opening paragraph asking them for help understanding the guidelines below and to explain what was missing from the documentation you provided to satisfy the requirements. Now, copy and paste the guidelines that follow in the email and end it by making a case for these two arguments (maybe reword them in a gentler way than what I wrote).
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Fannie Mae makes it very clear that as long as the income has been stable and consistent, even if the borrower has changed jobs frequently or works for a staffing agency, it can be used as qualifying income.
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The “Continuity of Income” requirements do not apply to base salary income, so there is no need to document that the income will continue for the next three years.
Applicable Fannie Mae Guidelines:
Fannie Mae Selling Guide: Part B3-3.1-01: General Income Information
Stable and Predictable Income
Fannie Mae’s underwriting guidelines emphasize the continuity of a borrower’s stable income. The stable and reliable flow of income is a key consideration in mortgage loan underwriting. Individuals who change jobs frequently, but who are nevertheless able to earn consistent and predictable income, are also considered to have a reliable flow of income for qualifying purposes.
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.
