The lender must determine the borrower’s recurring monthly debt obligation for such expenses by developing a 24–month average of the expenses, using information from the borrower’s IRS Form 1040 including all schedules (Schedule A and IRS Form 2106). when an automobile allowance is included in the borrower’s monthly qualifying income.when a borrower has commission income that represents 25% or more of the borrower’s total annual employment income, or.The lender must determine whether the borrower has unreimbursed employee business expenses for the following scenarios: a fully amortizing payment using the documented loan repayment terms.a payment equal to 1% of the outstanding student loan balance (even if this amount is lower than the actual fully amortizing payment), or.For deferred loans or loans in forbearance, the lender may calculate.The lender may then qualify the borrower with a $0 payment.
If the borrower is on an income-driven payment plan, the lender may obtain student loan documentation to verify the actual monthly payment is $0. If the credit report does not provide a monthly payment for the student loan, or if the credit report shows $0 as the monthly payment, the lender must determine the qualifying monthly payment using one of the options below. If the credit report does not reflect the correct monthly payment, the lender may use the monthly payment that is on the student loan documentation (the most recent student loan statement) to qualify the borrower. If a monthly student loan payment is provided on the credit report, the lender may use that amount for qualifying purposes. In order to exclude non-mortgage or mortgage debts from the borrower’s DTI ratio, the lender must obtain the most recent 12 months’ canceled checks (or bank statements) from the other party making the payments that document a 12-month payment history with no delinquent payments. When a borrower is obligated on a mortgage debt – but is not the party who is actually repaying the debt – the lender may exclude the monthly mortgage payment from the borrower’s recurring monthly obligations if the party making the payments is obligated on the mortgage debt. Non-mortgage debts include installment loans, student loans, revolving accounts, lease payments, alimony, child support, and separate maintenance. This policy applies whether or not the other party is obligated on the debt, but is not applicable if the other party is an interested party to the subject transaction (such as the seller or realtor). When a borrower is obligated on a non-mortgage debt - but is not the party who is actually repaying the debt - the lender may exclude the monthly payment from the borrower’s recurring monthly obligations. To ensure that the obligation is counted only once, the lender should adjust the net income of the business by the amount of interest, taxes, or insurance expense, if any, that relates to the account in question.Ĭertain debts can be excluded from the borrower’s recurring monthly obligations and the DTI ratio: If the account in question has a history of delinquency. It is reasonable to assume that the obligation has not been accounted for in the cash flow analysis. If the business provides acceptable evidence of its payment of the obligation, but the lender’s cash flow analysis of the business does not reflect any business expense related to the obligation (such as an interest expense-and taxes and insurance, if applicable-equal to or greater than the amount of interest that one would reasonably expect to see given the amount of financing shown on the credit report and the age of the loan). If the business does not provide sufficient evidence that the obligation was paid out of company funds. The account payment does need to be considered as part of the borrower’s individual recurring monthly debt obligations in any of the following situations: the lender’s cash flow analysis of the business took payment of the obligation into consideration. the business provides acceptable evidence that the obligation was paid out of company funds (such as 12 months of canceled company checks), and. 
the account in question does not have a history of delinquency,.The account payment does not need to be considered as part of the borrower’s individual recurring monthly debt obligations if: When a self-employed borrower claims that a monthly obligation that appears on his or her personal credit report is being paid by the borrower’s business, the lender must confirm that it verified that the obligation was actually paid out of company funds and that this was considered in its cash flow analysis of the borrower’s business.
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