Conventional Loans and unreimbursed employee business expenses

The following changes and clarifications have been made on Conventional Loan related to unreimbursed employee business expenses.

For a borrower who is qualified using base pay, bonus, overtime, or commissions income less than 25% of the borrower’s annual employment income:

• Unreimbursed employee business expenses are not required to be analyzed or deducted from the borrower’s qualifying income, or added to monthly liabilities.  This applies regardless of whether unreimbursed employee business expenses are identified on tax returns (IRS Form 2106) or tax transcripts from the IRS.
• Union dues and other voluntary deductions identified on the borrower’s pay stub do not need to be deducted from the borrower’s income or treated as a liability.
• The guide now clearly states that tax returns are not required to document these sources of income.

For borrowers earning commission income that is 25% or more of annual employment income, unreimbursed employee business expenses must be deducted from gross commission income regardless of the length of time that the borrower has filed that expense with the IRS.

• The exception to this is if the expense is an actual automobile lease or loan payment.  If borrowers report an automobile allowance as part of their monthly qualifying income, the lender must determine if the automobile expenses reported on the IRS form 2106 should be deducted from income or treated as a liability.