USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶9.7 — Overview

USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶9.7 — Overview

9.7 OVERVIEW Repayment income will determine if applicants have sufficient income to repay the mortgage in addition to recurring debts. Repayment income calculations often differ from the calculation of annual and adjusted annual income. Repayment income is the stable and dependable income of the applicants who will be parties to the note. Co-signers and non-occupant co-borrowers are not permitted for a guaranteed loan transaction. HB-1-3555 (03-09-16) SPECIAL PN 9-11 Revised (08-05-25) PN 649 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. 9.8 STABLE AND DEPENDABLE INCOME [7 CFR 3555.152(a)] 7 CFR 3555.152(a) and Attachment 9-A assist lenders in reviewing income types. The following guidance also assists lenders to consider repayment income sources: x The income source must be documented. x There must be evidence to support the historical receipt of earnings. x Establish the likelihood of its continuance for at least 3 years into the mortgage. x Analyze any gaps in employment to make a final determination of stable and dependable income. The Agency does not impose specific criteria regarding when a gap in employment is acceptable. It is the approved lender’s responsibility to analyze the complete employment history to determine stable and dependable income. x Caution should be utilized for applicants that have documented declining wages or earnings. Lenders must ensure repayment income is not inflated/overstated. x Caution should be utilized for applicants that have a documented sharp increase in earnings. A sharp increase in earnings is defined as a 20 percent or greater variance in income from the previous 12 months. Lenders must determine if an increase is supported and logical. Examples include, but are not limited to, a promotion with the current employer, documented pay raise, income trend analysis for overtime, bonus, commission, seasonal employees, etc. x Caution should be utilized for applicants that have a documented decrease in earnings. A documented decrease in earnings is defined as a 20 percent or greater variance in income from the previous 12 months. Lenders must determine if the decrease has/will continue or if there is evidence to support the earnings have stabilized. Examples include, but are not limited to, loss of job but new employment secured with lower wages, new profession/line of work, loss of contract/clients, economic cycle impact such as real estate, finance/lending, manufacturing, construction, etc. HB-1-3555 (03-09-16) SPECIAL PN 9-12 Revised (08-05-25) PN 649 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. x Lenders may gross up income that is not subject to Federal taxes 25 percent. x Any loss incurred by a self-employed business (full time or part-time) that is closed may be removed from consideration when the applicants provide a letter of explanation and documentation to the lender which details: 1. When the business was closed; 2. Why the business was closed; 3. How the business was closed; and 4. Evidence, satisfactory to the lender, to support the closure of the business. REMINDER: Approved lenders are responsible for their underwriting decisions, which includes the determination of stable and dependable income. Loans that default within 60 months of the date the Loan Note Guarantee is issued may result in indemnification from the approved lender to USDA due to unauthorized underwriting per 7 CFR 3555, HB-1-3555, and additional published USDA guidance.

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