On April 11, 2013 the USDA released (AN) 4714 “Standardized Income, Origination and Closing Templates” to replace AN4575 “Origination and Closing–Lender’s Documentation,” which expired on May 31, 2012.
This notice contains information to support lenders and agency staff with a nationwide standardized method to assist in the analysis, calculation and documentation of income. It also identifies required origination and closing documentation. This will ensure the objective and mission of the USDA Guaranteed loan program are met including:
►Identify, verify, calculate and document eligible household income.
►Identify, verify, calculate and document repayment income.
►Identify required origination documents for issuance of Form RD 1980-18, “Conditional Commitment for Single Family Housing Loan Guarantee.”
►Identify required loan-closing documents for issuance of Form RD 1980-17, “Loan Note Guarantee.”
►Identify electronic delivery e-mail addresses for the agency–all states.
►Tips for ensuring a lender’s request is processed in accordance with regulatory time frames.
For those of you with limited time to spend on the USDA Web site should focus your attention to Attachment A. This information and method of calculation will be used for documenting household income for eligibility purposes as well as repayment income for those who are a party to the note. The USDA expects the lender to choose the most representative calculation method which most accurately reflects the applicant’s income to be received during the next 12 months and that is validated by supporting documentation. A lender must choose the BEST method that represents the applicant’s projected repayment income and document it accordingly. The following income types and documentation are discussed in detail.
►Straight income is based upon the wage or benefit amount and converted to the annual equivalent.
►Averaging income is permissible if reported on the pay stubs or benefit statements for the last 30 days and convert to the annual equivalent.
►Year-to-date income is gross earnings divided by the year-to-date interval.
►Historical income is the income reported on previous year’s tax return.
Below are a few other notes on income to consider as you are qualifying your borrowers for eligibility.
Length of employment and stability of income
There is no minimum length of employment to consider the income as adequate and dependable. However, the lender must verify the applicant’s employment for the most recent two full years and verify that the applicant’s income has been and will be stable.
Commission, bonus, overtime, tips and second job
USDA states income from commission, bonus, overtime, tips and a second job should have a documented two-year history. If less than a two-year history is utilized for qualifying the loan, the lender must document in their underwriting analysis a credible basis for determining the income as stable and dependable.
Generally, income from self-employment is considered stable and dependable if the applicant has been self-employed for two or more years documented by not less than two years of income tax returns.
With more than 25 years in the mortgage industry, Rich Obermeier, branch manager for GSF Mortgage Corporation, has worked with some of the largest mortgage companies in the county developing retail and wholesale channels. Rich has assisted in developing and implementing operational protocols for sales managers, originators and loan processors. In recent years, Rich has developed the USDA Rural Development Product in multiple states and locations. Rich may be reached by phone at (262) 957-8901 or e-mail [email protected]