Skip to main content

Ask The Experts: Question of the Week

Our loan scenario desk experts receive thousands of questions from our subscribers.

Our experts work in the field and have over 25 years of experience, which is why they are known for saving a lot of deals.

We hope you learn something new!

Fannie Mae & Freddie Mac – Using Stipend Income

Question:

What are the guidelines around using stipend income for Fannie and Freddie?

Answer:

Freddie Mac is entirely silent on this topic, so it is more likely than not that a lender may apply the same concept that Fannie publishes to Freddie loans.

Fannie talks about stipend income in the FAQ on Income Assessment:

Q6: When can per diem earnings, expense stipends, and reimbursement for expenses be used as income?

A6: While every effort is made to include requirements for employment that generates income, some sources of income exist that may be variable in nature (such as per diem earnings or expense stipends) and are not specifically addressed in the Selling Guide.

As a result, the lender must evaluate and document the income in accordance with the policies in B3-3.1-01, General Income Information.  The documentation must support the income as stable, predictable, and likely to continue.

Reimbursements for expenses (e.g., work-related supplies, travel, meals, and entertainment) are not considered wages as they are provided to the borrower for the purpose of offsetting a specific expense incurred while performing a service for the employer. When income is provided for discretionary use, not for the purpose of offsetting a specific expense, the lender can evaluate the income according to B3-3.1-01, General Income Information.

Please note that there are typically limited opportunities for stipend income to be used.

Additional clarification: Stipend income itself is not addressed in the Fannie selling guide. It is addressed only in an FAQ document that Fannie listed as a question and answer. Freddie does not address this in the selling guide or any of their FAQ documents or other resources.

Summary: If the stipend is to reimburse the borrower for actual costs or expenses, it is generally not available for use as an income source since it is to offset an expense directly. If you can document that it is discretionary in nature, the lender is instructed to follow general principles for variable income sources.