Review and Calculate Income from a 1040 with 2106 Expenses

[Pages:44]Review of W-2 Wages, Tax Statement & Employee Business Expense Form 2106

Tax Return Series Part I March 2017

Genworth Mortgage Insurance Corporation

?2017 Genworth Financial, Inc. All rights reserved.

Materials You Will Need

? 1 Form 91 Worksheet ? Tax Return 1040's for Connie Commissions ? W-2

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Objective

Learn to use Freddie Mac's Form 91 to calculate supportable income using tax returns Complete Freddie Mac's Income Analysis Form 91

? Review W-2 Form ? Calculate Expenses reported on a 2106 (Un-reimbursed Business Expenses)

? Schedule A ? 2106 Worksheet

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Verifying Employment Income

What Not to Ask-

"How Much Do You Make?" About $50,000

$39,850!!

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Verifying Employment Income

The Interview- Let's talk about how you get paid...

Do you Receive an Annual Salary? Are you Paid by the Hour?

? If yes, what is your hourly rate? ? How many hours do you work per week?

? Are your hours scheduled or per diem? ? Do the amount of hours vary week-to-week? ? Do you work year round or is your position seasonal?

Do you Receive any Commission Or Bonus Income? ? If yes, have you received it for the past two years? Has it declined? Do you expect to continue receiving it?

?

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Base Income Entry

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Verifying the Qualifying Income

A minimum history of two years of employment is recommended. However, in certain circumstances income that has been received for a shorter period of time may be acceptable. Each file is reviewed individually.

Base Pay (Salary and Hourly)

Obtain the following documents: ? A Completed Verification of Employment (Form 1005) or ? The Borrower's Recent Paystub & W-2 Forms (covering the most recent two-

year period). A 1005 may be required to document the income types included on the W2.

? The paystub must be dated no earlier than 30 days prior to the initial loan application and it must include all y-t-d earnings.

? They must be computer generated or typed by the employer.

? A Verbal Verification of Employment (VVOE) ? Fannie Mae & Freddie Mac require lenders to have each borrower (regardless

of income source) complete and sign a separate IRS Form 4506-T at or before closing.

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Base Income and Commission Entry

Commissions must be

averaged & annualized!!

If you are using commission income to qualify your borrower you must: Confirm receipt for the past two years, determine that it is regular & reoccurring (not declining) and calculate the % of income the commission earnings represent of the monthly qualifying income. If the commission earnings represent 25% or more of the income you must review the borrower's tax returns to determine if they have filed a 2106 expense form

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