OVERTIME INCOME AND THE DIFFERENCES WITH EACH LOAN PROGRAM

Most people likely think overtime calculations are the same across the board for Fannie, Freddie, FHA, VA, and USDA.

Interestingly enough they have similarities although there are some important differences between all of them.

Check out the little nuances that make them unique and use them to better serve your clients. Especially the VA one where they have only received for 12 – 24 months.

OVERTIME INCOME GUIDELINES

FANNIE

  • 2 Years preferred. Minimum of 12 months allowed.
  • As long as nothing indicates OT will go away, you can use it.
  • If OT is increasing. Average over time received up to 2 years.
  • If trend WAS declining but now stabilized to what it was then you can average the income.
  • If trend IS declining it is underwriter discretion and will need documentation to show why and the reliability of using the income must be justified. You cannot average and must use lower amount if allowed to use.

FREDDIE

  • 2 years preferred with a minimum of 12 months allowed.
  • Must be likely to continue for next 3 years. Subtle but different from Fannie.
  • Freddie gives % ‘s of 10% where Fannie is not % based.
  • If OT is consistent and growing, you can average the income up to 2 years.
  • If OT is 10% GREATER than previous year, then you must justify using the higher amount. Reasons could be job promotion or consistently growing income year over year. They do not want to give higher avg income if it is not going to continue.
  • If OT is declining, you must use current earnings for income.
  • If OT is 10% LESS than previous year, then income may not be stable and underwriting must justify the higher reduction in income to be able to use.

FHA

  • 2 years preferred with a minimum of 12 months allowed.
  • Must be reasonably likely to continue.
  • If OT is more this year, then avg Over Time received up to two years.
  • If OT is less this year, then avg OT YTD only.

VA – NOT LIKE THE REST

  • Must have received for two years to use actual OT income.
  • Must be consistently receiving OT.
  • Must have likelihood of continued employment.
  • Here is the big difference. If received more than 12 months and less than 24 months you can only use the income to offset debts that have terms of 6 to 24 months remaining. Does not help revolving debt.
  • If OT is more this year, then avg Over TIme received up to two years.
  • If OT is less this year, then avg OT YTD only.

USDA

  • Only requires one year in the same or similar line of work.
  • USDA assumes it will continue unless documentation proves it will not.
  • USDA gives a % of 20% where income must be reviewed to decide whether it is temporary in nature or an overall trend.
  • Similar calculation methods.
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