Introduction

This topic contains information on analyzing military, government agency, and assistance program income, including

Change Date

May 10, 2009

4155.1 4.E.3.a Military Income

Military personnel not only receive base pay, but often times are entitled to additional forms of pay, such as

These types of additional pay are acceptable when analyzing a borrower's income as long as the probability of such pay continuing is verified in writing.

Note: The tax-exempt nature of some of the above payments should also be considered.

Reference: For information about non-taxable income, see HUD 4155.1 4.E.5.

4155.1 4.E.3.b VA Benefits

Direct compensation for service-related disabilities from the Department of Veterans Affairs (VA) is acceptable, provided the lender receives documentation from the VA.

Education benefits used to offset education expenses are not acceptable.

4155.1 4.E.3.c Government Assistance Programs

Income received from government assistance programs is acceptable as long as the paying agency provides documentation indicating that the income is expected to continue for at least three years.

If the income from government assistance programs will not be received for at least three years, it may be considered as a compensating factor.

Unemployment income must be documented for two years, and there must be reasonable assurance that this income will continue. This requirement may apply to seasonal employment.

Reference: For information on analyzing income from seasonal employment, see HUD 4155.1.4.D.2.e.

4155.1 4.E.3.d Mortgage Credit Certificates

If a government entity subsidizes the mortgage payments either through direct payments or tax rebates, this income may be considered as acceptable if the lender verifies the information in writing.

Either type of subsidy may be added to gross income, or used directly to offset the mortgage payment, before calculating the qualifying ratios.

4155.1 4.E.3.e Section 8 Home Ownership Vouchers

A monthly subsidy may be treated as income, if a borrower is receiving subsidies under the housing choice voucher home ownership option from a Public Housing Agency (PHA). Although continuation of the home ownership voucher subsidy beyond the first year is subject to Congressional appropriation, FHA has agreed that it will assume, for the purposes of underwriting, that the subsidy will continue for at least three years.

The amount of non-taxable income may also be “grossed up” by 25 percent, that is, the amount of the subsidy, plus 25 percent of that subsidy may be added to the borrower's income from employment and/or other sources.

Alternatively, lenders may treat this income as an “offset” to the monthly mortgage payment (that is, reduce the monthly mortgage payment by the amount of the home ownership assistance payment before dividing by the monthly income to determine the payment-to-income and debt-to-income ratios).

To use this procedure, the assistance payment must not pass through the borrower's hands. In other words, the assistance payment must be

Assistance payments made directly to the borrower must be treated as income..