August 17, 2017

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Income Documentation: A Reader Question

A reader got in touch with us this week to ask a question about the FHA requirements for income documentation: “I work on a commission basis where a large part of my income does not appear on my w2. Say I make 4,000.00 in commission my expense to do my job is 1,000.00 my employer will write a check to me for that amount and them deducts it from my 4000.00 commission and then I am taxed on the remaining 3,000.00.”

“I am at the end of the loan process and the underwriter is requesting a letter of explanation from the employer and she will not respond. Does she have to legally comply and how long can she take?”

Unfortunately this falls dangerously close to asking for legal advice, and the only such advice we can make, not being lawyers, is to consider legal counsel. It’s always best to consider hiring a lawyer when seeking a legal remedy.

HUD 4000.1, the FHA Single-Family Mortgage program rule book is silent on what to do in cases like these, since the rule book is basically instructions to the lender and/or the FHA appraiser on how to carry out the lender/appraiser side of FHA loan transactions.

In cases where HUD 4000.1 speaks to a specific set of conditions or circumstances, we can cite the rules found there. But legal advice or quoting passages from state, federal, or local laws is outside the scope of this blog most of the time.

There are some things that may be possible in situations similar to the one mentioned in the reader’s question. If the company in question has a Human Resources department, for example, it may be best to get in touch with HR as soon as possible to see what recourse there might be in terms of getting some form of the required documentation.

The borrower should also consider asking the lender if there is an alternative form of documentation that can be provided. It’s best to expect the lender to require some type of explanation in writing about the situation and why the preferred income documentation is not possible.

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