Stable Monthly Income FAQ
Guide Topic 5300
Disclaimer
This information is not a replacement or substitute for the requirements in the Freddie Mac Single-Family Seller/Servicer Guide and other Purchase Documents.
Contents/Topics
Chapter 5301: General Requirements for all Stable Monthly Income
General Requirements for All Stable Monthly Income (5301.1(b))
Chapter 5302: General Requirements for Documentation Used to Verify Employment and Income
10-day Pre-Closing Verifications (10-day PCV) (5302.2(d))
Toggle all accordion sections
- The 10-day PCV verifies the borrower’s employment status as employed; however, I have other information that indicates the borrower may be furloughed or laid off. Is it acceptable to use the 10-day PCV as confirmation of the borrower’s employment...
- If the documentation provided for the 10-day PCV provides updated income information (e.g., year to date paystub, written verification of employment), does that information need to be reviewed for stable monthly income? [NEW 12.06.23]
- What does Freddie Mac mean by stating that the employer’s work email address must be independently obtained?
- If the borrower provides his or her supervisor’s email address, can it be used to verify employment?
- If a generic email address (for example, [email protected]) is found on the company website, can this email address be used to verify the borrower’s employment?
- The requirement states that the year to date paystub used for a 10-day PCV must be dated no more than 15 business days prior to the note date. If the borrower is paid monthly and has not yet received a more recent paystub, is there an exception to this...
Age of Tax Return Requirements (Section 5302.4(b))
Toggle all accordion sections
- Must the Internal Revenue Service (IRS) response, which verifies that no tax transcripts are yet available, meet the age of documentation requirements stated in Guide Section 5102.4?
- If tax returns are not yet due to the IRS, how can a Seller determine whether the borrower has filed most recent calendar year of tax returns with the IRS?
- If the IRS Income Verification Service (IVES) program is experiencing delays, it may not be possible for Sellers to obtain verification that no tax transcripts are yet available. Is it acceptable for this verification to be obtained by the borrower...
- Please provide an example, with dates, outlining the minimum documentation requirements in the event the IRS extends the filing due date for individual tax returns beyond April 15, 2025. (Revised 2/05/25)
- Is there any flexibility for the note date requirement of November 1? For example, when the closing is rescheduled to a date that is after the required note date.
- Is there any flexibility for the note date requirement of November 1 when the IRS provides relief related to filing deadlines due to reasons such as events in a federally declared disaster area? [12.06.23]
- Will the table for the age of tax returns requirements in Section 5302.4(b) be applicable after 2025? The table has very specific years (e.g., 2023, 2024) rather than being written in more general language (e.g., tax returns from the most recent ...
- When analyzing self-employed income with dated tax returns, is it acceptable to obtain only one of the examples cited in the row labeled “business and/or individual tax return(s) – most recent calendar year not yet available,” Section 5304.1(g) ...
Chapter 5303: Employed Income
Income Reported on IRS Form 1099 for Services Performed (Section 5303.1(e))
Toggle all accordion sections
- If the income characteristics reported on Schedule C meet the requirements to treat the income as non-self-employment income, may we still leverage the more conservative self-employed income requirements and analysis? [NEW 09.07.22]
- The borrower’s pay structure recently changed from W-2 income to 1099 income. The borrower was a salaried employee in receipt of W-2s for five years; however, the borrower changed companies four months ago and will be paid with a 1099 but is performing...
- The borrower receives 1099 income for services performed from multiple sources. Is this acceptable? [NEW 09.07.22]
- What are the expectations for pre-closing verifications and what if it is not possible to obtain one? [NEW 09.07.22]
Borrowers with Business Ownership Interest(s) Less Than 25% (Section 5303.1(e))
Toggle all accordion sections
- Why does the Guide state that “The Borrower should not have an ownership interest of 25% or more in any business”? [NEW 12.06.23]
- If the borrower has an ownership interest of less than 25% in multiple businesses, but does not hold an ownership interest of 25% or more in any business, do the requirements and guidance in 5303.1(e) apply? [NEW 12.06.23]
- The requirements state that historical cash distributions must be reasonably consistent with the ordinary business income reported on the K-1. If the historical cash distributions are less than the ordinary income, is the income automatically...
Employed Income Calculation (Sections 5303.1(c) and (d))
Toggle all accordion sections
- If the income is documented with a written verification of employment (VOE) but there are also year-to-date (YTD) paystubs in the file, do the YTD paystubs need to be considered when underwriting the borrower’s income? [NEW 11.01.23]
- If the earnings are base fluctuating hourly and a minimum number of hours worked per pay period (e.g., 32 hours per week) is verified based on a review of the prior year and YTD income, is it acceptable to calculate weekly gross income using the ...
- If the earnings are fluctuating hourly and qualifying income is calculated using the verified minimum number of hours worked per pay period, as described in the question directly above, does the requirement for minimum 12 months of history of primary...
- The income consists of base fluctuating hourly employment earnings and overtime. The Single-Family Seller/Servicer Guide (Guide) requires documentation of two prior years of income for calculating the overtime income, and one prior year for calculating...
- When calculating the income average for fluctuating hourly earnings and/or additional employed earnings such as overtime and commission, the requirements state to average the most recent year(s) and YTD income over the applicable number of months of...
- The earnings on the YTD paystub represent base fluctuating hourly earnings and a pay raise was received from $25.00 per hour to $28.00 per hour at the end of March in the current calendar year. What additional documentation is needed to apply the ...
- The written VOE documents fluctuating hourly earnings and a raise received this calendar year. The written VOE also shows an entry for “average hours per week.” May this field be used as a verification of the average number of hours worked during the...
- Is a letter signed by the employer on the employer’s letterhead an acceptable form of documentation when verifying raises, average hours and/or documented income breakdowns? [NEW 11.01.23]
- How do you determine the degree of fluctuation percentage for the purpose of requirements in Section 5303.1(d) for fluctuating employment earnings? [REVISED 10.02.24]
Chapter 5305: Other Income
Tax Exempt Income
- Is a printout from IRS.gov with the appropriate amount of relevant information considered as acceptable “other documentation” to evidence that the income, or a portion of the income, is tax exempt? (NEW 02/07/24)
- If the borrower’s tax return from the most recent calendar year is in the mortgage file and shows the taxable income, but the level of income has changed from the prior year to the current calendar year due to a documented event...
Trust Income
Alimony, Child Support or Separate Maintenance Income Documentation
Toggle all accordion sections
- What are examples of documentation that would not be considered acceptable evidence of receipt of alimony, child support or separate maintenance income?
- What documentation is acceptable to evidence that the alimony, child support or separate maintenance payment was transferred into a third-party money transfer application account that is owned by the borrower?
- What other legally binding documentation may be used to document the payor’s obligation?
- When the payment amount for alimony, child support or separate maintenance income has been renegotiated resulting in a higher monthly payment amount (e.g., $900 per month increased to $1,000 per month), can the higher payment amount to be used as…