How does Fannie Mae evaluate part-time income for mortgage applications?
Fannie Mae assesses part-time income by first requiring documentation of the income over a minimum period—typically, a two-year history is preferred.
This ensures that the income is stable and predictable.
The income documentation includes tax returns that demonstrate earnings from part-time work, and lenders input this data into Fannie Mae’s Income Calculator for assessment.
Fannie Mae considers the consistency of part-time income based on the borrower’s employment history, including factors like job stability and the type of employment.
Unique to Fannie Mae, income from secondary or seasonal employment can be factored into the overall qualifying income if it has been calculated properly and documented as stable for at least 12 to 24 months.
Income received for a shorter duration is also acceptable if there are strong compensating factors, such as a full-time job with a stable income or a history of consistent part-time earnings.
Lenders must verify employment through various methods, including written verification from the employer or pay stubs, to ensure the accuracy of reported part-time income.
In certain cases, part-time income can still be counted when the borrower is receiving it from self-employment, provided they can substantiate their earnings with proper documentation.
Fannie Mae has specific guidelines for determining if part-time income is stable, which includes examining the borrower’s likelihood to continue receiving that income in the foreseeable future.
Rules around non-taxable income, such as child support or certain disability payments, differ from regular part-time income and can also be counted in total income calculations based on specific verification requirements.
Documenting income from part-time jobs may require Trends Analysis, where lenders look at how the income has evolved over time to assess its sustainability.
Fannie Mae uses an established set of criteria to distinguish between regular employment and part-time jobs; for instance, if the part-time work is secondary to a full-time job that provides most of the income, it may be treated differently.
The evaluation process takes into account market conditions; for instance, downturns in specific sectors may affect predictability of income from part-time work, influencing financing decisions.
Borrowers with a history of fluctuating part-time income may be required to show additional sources of steady income if they want to improve their qualification prospects.
Fannie Mae guidelines also monitor income in relation to the borrower’s employment type, ensuring there isn’t a significant mismatch that could lead to doubts about the source of income.
Borrowers with more than one part-time job can have income from multiple sources considered, but the cumulative part-time income must still meet Fannie Mae's criteria for being stable and predictable.
The evaluation of part-time income also extends to the borrower’s education and career track, which can provide insights into future earning potential from various job types.
Fannie Mae’s policies are updated regularly, reflecting changes in labor trends and economic conditions, which can impact how part-time employment is viewed across different sectors.
Specific calculations are employed in the Income Calculator to derive qualifying income, which are calibrated to fall in line with Fannie Mae’s stringent underwriting guidelines.
Borrowers are often advised to maintain strong records of their earnings, with an easily understandable trail of how they arrive at their income figures, which will aid lenders in the verification process.
Littler-known aspects include that lenders may also assess the borrower’s debt-to-income ratio without counting all part-time income, adversely affecting an application if consideration is not thoroughly established through documentation.