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FHA Bonus & Overtime Income
Question:
I have a borrower who has been earning overtime and bonuses for one year and three months. Can we use this income?
Answer:
FHA allows overtime and bonus income to be used as effective income as long as it’s been earned for at least 1 year and is likely to continue. Per the guideline below, you’ll make 2 calculations (the average over 15 months and the average over the last 12 months) and use the lesser of the 2 as qualifying income (see “Calculation of Effective Income” below).
Reference:
4000.1, II, A, 4, c
v. Overtime, Bonus or Tip Income (TOTAL)
Calculation of Effective Income
For employees with Overtime, Bonus or Tip Income, the Mortgagee must calculate the Effective Income by using the lesser of:
• the average Overtime, Bonus or Tip Income earned over the previous two years or, if less than two years, the length of time Overtime, Bonus or Tip Income has been earned; or
• the average Overtime, Bonus or Tip Income earned over the previous year.