AB Requirements for Income Qualifying 

Prior to a loan being approved for a prospective borrower AB needs to be satisfied that the borrower has the capacity to meet the loan repayments on due dates without default for the entire life of loan; in addition to his trustworthiness or creditworthiness. As such the borrower would be required to establish his sources of income which should meet with AB requirements for acceptability and the nature of their permanency.

The proof the borrower would be required to submit in the above regard may comprise of his or her past employment records and a confirmation of the continuance of employment into the future.

The scrutiny of a person’s past employment record gives a general indication of the level of stability that could be expected in the future. AB needs to verify the borrower’s employment record for the past two years backed with documentation such as W-2’s. The income also needs to be analyzed to determine whether the consistency of income and the employment could be expected to continue at least for the first 3 years of the life of the mortgage loan.

If there is a likelihood of the borrower retiring within this period, AB need to ascertain the extent of his or her retirement income and security benefits etc. The borrower should furnish valid reasons to satisfactorily explain gaps (if any) in the past employment record.

Schooling, training etc. may be counted towards fulfilling the requirement of two years of past employment if that schooling/training etc. is consistent with the nature of the borrower’s profession or vocation. Further, granting allowances for gaps in respect of certain types of employment that are seasonal in nature such as in the building trade, may be considered.        

The Following is a Schedule of Types of Income
Acceptable to AB

• Salary / W-2 Income
• Overtime & Bonus: Both types of income may be considered for qualifying the borrower if such income has been received over the past two years on a consistent basis and if the indications are that the trend is likely to continue. Generally, bonus and overtime received during the two years may be added and averaged for determining the borrower’s monthly income.

• Part-time Income: Income received from part time employment (in a secondary job) may be considered qualifying purposes of the borrower’s income if that item of income is seen to be present over the two year period uninterrupted, except for breaks that can be established as due to seasonal reasons. Further, the prospect of its continuation also has to be reasonably established. If the part time income furnished by the borrower does not meet the above requirements, then that income may be treated as a chance, compensating factor only.
• Commission Income: Commissions earned over the past two years also may be averaged on a monthly basis for qualifying purposes. The borrower will be required to furnish his/her Federal Tax Returns (1040’s) inclusive of all relevant schedules for the past two years. If there is found be any business expenses un-reimbursed, they would be deducted from the gross income.

• Retirement & Social Security Income:  Source verification is mandatory. If it is determined that this income is likely to expire within the next 3-year period, such income can only be considered as a compensatory factor and would not be taken for qualifying purposes.
• Alimony, Support for Child & Separation Maintenance:   A borrower using such types for income to qualify would be required (1) to furnish the relevant income particulars for the past one year from the ex-spouse or any courts records showing timely payments (2) to provide reasonably acceptable evidence to establish that this pattern of income would continue uninterrupted for the next 3 years at least, and (3) and submit a copy of the divorce decree and an agreement of settlement etc.

• Notes Receivable:  Borrower would be required to submit a copy of the Note together with evidence that payments had been made for a minimum period of 12 months. If the Note were to expire within a period of 3 years, then it could only be made use as a compensating factor.
• Dividends & Interest:  Income on Dividends and Interest may be used if at least a history of 2 years of receipts can be supported with such documentation as account statements and tax returns. However, dividend re-investment plans would not be considered.  

• Rental Income:  Receipt of Rents from the borrower’s own investment properties may be considered subject to the submission of all necessary documentation in support of it, although income derived from roommates etc. from within a property occupied by the borrower as his primary single family residence would not be acceptable.
  
  In taking rental income for qualifying purposes, any mortgage payments made in connection with the relevant properties would be deducted from the actual rent received further reduced by 25%. It is noteworthy, that in certain cases the rental income could be a negative factor where the mortgage payments on the property concerned exceed 75% of the rent income derived from it.
• Self Employed:   If a borrower has a more than 25% stake in a business ownership, such income would be considered as income from self employment; provided there is evidence to show the receipt of such income for at least a period of one year or more.
  
  The borrower would be required to substantiate his self employed income with the production of the following documentation: (1) personal tax returns inclusive of all relevant schedules for the immediately preceding 2 years; (2) financial statements (profit and loss and balance sheet) for the last 2 completed financial years and any interim period thereafter, together with K-1’s, 1120’s and 11205’s for the last 2 years; (3) additionally, the borrower would be required to sign an income tax release form 8821 or 4506.
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