Written By: Bonnie Wilt-Hild, Op-Ed Writer
As we embark on the new age of fully documenting income and assets for each case, it is important to remember that creativity is key. Often we have borrowers that do not fit into the traditional molds therefore making it a little more difficult to completely document their income in the traditional sense.
Some examples of this might income derived from child support, alimony, or seasonal income that might not appear continuous even if consistent. Income that might be derived from say foster care services is also a source of income that can cause some confusion due to the fact that it is not taxable and can vary based on the number of children the foster care provider is currently caring for. What to do, what to do.
I have personally found that keeping an open mind when approaching these situations is very helpful particularly when dealing with non taxable income, which seems to be the most challenging income to document from an underwriting standpoint. Not having the traditional tax returns or 1099’s to support the income claimed forces us to determine the income using non-traditional means not to mention a lot of common sense.
Very recently I have had the pleasure of several of these types of cases, which while somewhat daunting, were also quite fun. There is nothing like leaving the norm of traditional plain vanilla underwriting and entering the realm of creative financing, with responsibility of course. I have found that I have welcomed in each of these cases the principal of income averaging.
In one particular case, the borrower was receiving child support for two children that was not administered by the local child support agencies. Each of the children had different fathers that were residents of other states. In one instance the non-custodial parent was court ordered to pay $800.00 monthly for the child, which he paid outside of the courts. In the other instance, the child’s father had entered into an agreement with the borrower that was outside of the court system under which he acknowledge paternity and agreed to pay $500.00 monthly for the upkeep and support of the child.
This particular parent provided a notarized letter stating that he had agreed to this amount of support and had been paying the applicant directly. The borrower provided the court order to demonstrate the child support for the other child. With this documentation in hand, my processor then needed to demonstrate that the child support income had been received for at least the most recent 3 months.
The issue: The borrower provided bank statements which demonstrated direct deposits into her account from each of the non custodial parents, however, upon review the deposits appeared inconsistent with the amounts each were claiming they paid. There were no straight deposits in the amounts of $500.00 or $800.00 monthly; however, there were consistent deposits, which identified income wires from both non-custodial parents each month.
In this particular case, we obtained 12 months of bank statements from the borrower demonstrating the constant deposits from both non-custodial parents and averaged the income over a 12 month period. The monthly average was slightly less then $1300.00 monthly but it did give the borrower the full benefit of the income verified.
Another example is a recent case in which the borrower received foster care income. Again, the income is not taxable so no documentation was available to determine the income the borrower had received over the most recent two years as a result of this service.
In this case I obtained a letter from the local Department of Social Services, which stated that the borrower had been providing foster care services for the most recent two years and that she was in good standing. Additionally, I documented how may children the borrower was approved to care for at any given time, which were four. The Department of Social Services also gave an estimate of the monthly amount the borrower could receive for each child and this amount varied depending on the needs of the child. I then confirmed with the Department that the borrower had at certain times cared for as many as four children.
Currently, the borrower was caring for two children. In this case I determined the monthly average income per child based on the range of income provided by the Department of Social Services and used an average of two children. The amount was slightly less than the borrower was currently receiving, however, it did give the borrower the benefit of the income while using a conservative approach to the amount of income the borrower had the potential to earn for providing these services.
Approaching income situations where the income is not easily determined can be challenging, however, a common sense approach to calculating the monthly average of the income does help. In most cases mortgage professionals can assist the borrower in determining what documentation would best demonstrate this income therefore allowing the borrower the benefit of the income even if somewhat less than traditional documentation is used.
Additionally, the underwriter has a comfort level where the income is concerned knowing that a conservative approach was used to calculate the amount of useable income.
In short, we put deserving individuals into the home they deserve while continuing to ensure a performing portfolio for the lenders that employ us. Everyone wins.
About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions, including Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".