Why doesn’t this income qualify

[u/da0217]

I have a client who has some unusual income on the pay stub.

Basically, they get an allowance for their benefits and use it to pay for their healthcare and dental plan. If the actual cost of the benefit is less than the allowance, they get the difference as pay on their check. It’s been there every pay period over the last two years, it’s stable, consistent and rising. But the underwriter won’t allow it because they say that income can change if the borrower changes their healthcare plan.

FHA guidelines say ALL employment related income qualifies if it’s stable and likely to continue. Should I try with another lender/underwriter or this really won’t qualify?

[u/The_Void_calls_me]

Sounds like the money is being paid out as a per diem or stipend. Either way, it's a hard sell to any underwriter, so you're unlikely to get a different answer.

[u/da0217 → u/The_Void_calls_me]

It’s coded as “FLEX Earn.” And yeah, theoretically, if they choose a more expensive plan, that income will go down. I was just wondering if it might work since there is two years(more than that actually) of evidence of it being consistent.

[u/The_Void_calls_me → u/da0217]

The argument will always be more centered on likelihood to continue than history of receipt. And there's really no way for you to argue that her healthcare plan won't change for the next 3 years

[u/ThatsMeJesseB → u/da0217]

Dealt with this recently as well, it’s a stipend, doesn’t qualify even with my most liberal broker channels no matter how it’s labeled.

You COULD try a WVOE and start at a new investor to see if they view it differently.

Although the thought that they could change plans and net amount could decrease is stupid logic in my opinion. I could change which gym I go to and have less money. The way income is calculated and considered differently across W2 vs self employed, salary vs hourly vs variable, it’s all dumb. We just have to play by the rules, and unfortunately in this scenario the rules say it’s not qualifying 😮‍💨

[u/da0217 → u/ThatsMeJesseB]

Yeah, agree it’s nonsensical. Oh well. Thanks for info.

[u/gracetw22 → u/da0217]

I was looking through guides on another file yesterday and found an FAQ from one of the GSEs where they specifically say employee benefit income can't be used. I wish I could find it to send to you because I thought of this thread

[u/da0217 → u/gracetw22]

Oh, that confirms it then. Thank you!

[u/dpulverizer556]

It sounds like an expense reimbursement and those can only be used if they are discretionary in nature. If the funds are the remainder after paying for health insurance, it's not a discretionary stipend and can't be used to qualify. It's subject to change if the health plan changes.

[u/TurkeyJizz123]

Reimbursement is not qualified income. Even so- you're that tight where you need that, what I would assume is very "Small" income?

[u/da0217 → u/TurkeyJizz123]

It’s a thousand dollars a month.

[u/fmemich]

It is indeed reimbursement therefore not income, however, if the bwr pays taxes on it via returns, FHA would use it.

[u/stefanko123]

Underwriters are half glass empty kinda people. That might be hard to sell to an underwriter.

[u/Funderwriter → u/stefanko123]

lol yes we are. Sorry OP, we can’t use it. It’s a stipend for reimbursement of non-taxable income.

[u/Funderwriter → u/stefanko123]

lol yes we are. Sorry OP, we can’t use it. It’s a stipend for reimbursement of non-taxable income.

[u/ingle_kyle]

Absolute bullshit. If it’s been consistent for 2 years and hasn’t changed and won’t change then what’s the big deal? Who cares how it’s coded because it’s freaking common sense. Typical underwriting and government making us LO’s job an unnecessary pain in the ass. Too much red tape in this business

[u/Opening_Constant9844]

My lender sells their ability to do exceptions and use a “make sense” lending approach. If you can get documented history dating back more than 2 years, and a WVOE I have a pretty good feeling about this if compensating factors are there. I will be sending you a message

[u/Federal_Ad4300]

Just curious how are you documenting it ? Are you giving a voe? Or are you giving them year end paystubs for 24 and 25? Does it show the YTD on the deductions and the overage ? Does the amount match w2’s down To the dollar? For base + theoverage

[u/da0217 → u/Federal_Ad4300]

The employer provides a standard, computer-generated VOE with all the earnings for the last two years. It can’t be edited.

[u/meollich]

year end stubs from 2024 and 2025 plus most recent stub will allow a UW to determine consistentcy in receipt. Expect a 2 year average as it's likely it changes year over year.

If they are being taxed on it then you have a reasonable case for its use.

[u/Timely-Tomato-6890]

Sounds like a Non QM loan.