Underwriting Training : Calculating Income

Written By: Stacey Sprain

One of the hottest topic I have run across recently is the question of how to calculate income. I think I’ve had this specific question come up a half dozen times in the past two weeks alone. Thus, the topic for this week!

It’s been awhile, since, I last researched the topic to see what materials are out there so I dove in to see what I could find and am so glad I did! I found that Fannie Mae has some great tools available to help you learn about income calculating. Fannie Mae offers a wonderful 26 minute recorded web session that covers the topic of income calculation quite thoroughly.

You’ll find a link to the recorded presentation athttps://www.efanniemae.com/lc/ou/websem/index.jsp. It’s laid out very nicely and you can click on the actual topic of question to hear exclusively about that individual topic rather than have to listen to the entire presentation if you are looking for a quick answer to a question about say, overtime income calculations for example.

Fannie Mae also offers a very informative and well presented 53 minute recording on calculating self-employment income. I found this to be the best I have personally ever heard so I highly recommend listening in on it. Newbie and seasoned processors alike can benefit from this training session. What I find that will prove most helpful to processors is the instructions for completing form 1084 as well as the actual Form 1084 Job Aid which reflects exactly what line to look at on the tax returns to fill in each blank on the worksheet. That tool is priceless!

A piece of important advice, I can offer to processors is to create and utilize a standard income calculation worksheet that you use and submit to underwriting with each and every file. It will serve as a means of consistently communicating to the underwriter where your qualifying income figures were derived. It also helps anyone who has to cover for you in your absence. By consistently using a worksheet, a person filling in for you can easily see how you calculated income on every loan file in case any questions arise while you are out.

The worksheet doesn’t need to be overly fancy or complicated- just a simple format will do. The worksheet simply needs to communicate the basic income calculations for the various earnings types. Note that the example below will not serve all situations as there will be other income types to consider under some circumstances, but this example will work for basic income structures. Refer to the example below.


Borrower: Employer:

Start Date: Position:

___ Borrower is an Hourly Wage Earner

Hourly rate of pay = $______ x _____ hours per week x 52 weeks divided by 12 months

= $_____________ qualifying income

___ Borrower is Weekly Salaried

Weekly salary rate $________ x 52 weeks divided by 12 months

= $_____________ qualifying income

___ Borrower is Bi-Weekly Salaried (paid every other week or 26 pay periods per year)

Bi-weekly salary rate $______ x 26 pay periods divided by 12 months

= $_____________ qualifying income

___ Borrower is semi-monthly salaried (paid twice monthly such as on the 1st and 15th
or 15th and last day of the month or 24 pay periods per year)

Semi-monthly salary rate $_______ x 24 pay periods divided by 12 months

= $_____________ qualifying income

___ Borrower is Monthly Salaried (paid once per month)
= $_____________ qualifying income

For self-employed borrowers, it’s always best to refer to FNMA Form 1084. You should complete Form 1084 and include the completed worksheet with your underwriting submission as it will serve as communication to the underwriter or where the income is derived.

It’s important to always pay close attention to the borrower’s paystubs as on occasion they will display undisclosed expense deductions for child support obligations and in come cases, repayment deductions for wage garnishments resulting from judgments and liens. Also, beware of professions that involve job titles for sales positions and driver positions as often these positions involve business expenses which may or may not be reimbursed by the employer and may or may not appear on schedule A of a borrower’s tax returns as a tax write off.

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About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.


Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.