Overview

1. Overtime, Bonus and Commission income are considered variable income sources.
   
1. These sources of income normally vary from month to month, and receipt of these is usually dependent of a number of factors.
   
2. This type of income must be verified with a two year history of receipt, and a likelihood of at least a three year continuance.
   
3. These income sources are verified with a written verification of employment; “WVOE”.
   
4. If commission income represents 25% or more of the borrower’s total annual employment income, obtain copies of the borrower’s signed and filed federal income tax returns that were filed with the IRS for the past two years; and either
   
1. a completed WVOE, or
   
2. the borrower’s recent paystub and W-2 forms covering the most recent two-year period.
   
5. For borrowers with commission income representing 25% or more of their total annual employment income, any unreimbursed business expenses must be subtracted from the gross commission income.
   
6. Overtime, Bonus, and Commission are averaged over 24 months.
   
7. Overtime, Bonus, and Commission income must be examined to determine whether there is a declining income trend.
   
1. When there is a declining trend, the most conservative income calculation must be used to qualify. In some cases, the income may be deemed unacceptable and not used for qualification purposes by underwriting.
   
8. When there is a declining trend, the most conservative income calculation must be used to qualify.
   
1. In some cases, the income may be deemed unacceptable by the underwriter.
   
2. Even though the income may actually be received by the applicant, it would not be used as qualifying or effective income for loan qualifying purposes.
   

Example

1. Overtime year to date = $1,375
   
2. Overtime for the entire year of 2016 = $2,500
   
3. Overtime for the entire year of 2015 = $1,450
   
   
   2500 + 1450 = 3950 / 24 = $164.58 per month
   
   Effective Income: $164.58 per month

1. Commissions year to date = $0.00 (zero)
   
2. Commissions for the entire year of 2016 = $2,000
   
3. Commissions for the entire year of 2015 = $5,000
   
   2000 + 5000 = 7000 / 24 = $297.67 per month
   However, since the income declined from 2015 to 2016, and from 2016 to year to date 2017, (there is zero commissions YTD), the more conservative approach would be NOT to use commission income as qualifying or effective income.
   
   Effective Income: $0

1. Bonus year to date = $500
   
2. Bonus for the entire year of 2016 = $5,000
   
3. Bonus for the entire year of 2015 = $10,000
   
   5000 + 10000 = 15000 / 24 = $625 per month
   Since the income declined from 2015 to 2016, and from 2016 to year to date, the more conservative approach would be used: 2016 bonus income averaged over 2016 or 12 months,
   
   $5,000 / 12 = $416.67 per month
   
   Effective Income: $416.67 per month

Un-reimbursed Expenses

1. Use of these expenses in the income calculation is only necessary when the borrower’s commission or bonus exceed 25% of the total qualifying income.
   
2. Schedule “A” Un-Reimbursed Expenses (URE) are out-of-pocket expenses incurred by the borrower and were needed to complete the borrower’s job.