Monday, March 25, 2013 / by Kevin Comisky
If you have been around long enough, you’ve either had problems getting a loan, couldn't get a loan or lost out on buying a home because you:
1) Suffered a temporary medical disability
2) Required time off for pregnancy or other family issues
That no longer has to be the case based on some recent changes. I bet you that no lender will be out there openly advertising these changes to you.
In 2012, BofA settled with HUD and an Irvine woman (on maternity leave) for over a $160k.
BofA was not the only lender engaging in this practice, just the one that HUD made an example of.
Now that HUD has begun aggressively enforcing “The Fair Housing Act” we have clear guidelines regarding “temporary leave income” .
“Temporary leave” from work is defined as:
"a short leave of absence for reasons of maternity or parental leave, short-term medical disability or other temporary leave types that are acceptable by law or the borrower’s employer".
Borrowers on temporary leave need not be paid to count their full salary towards purposes of qualifying for the home loan.
Temporary Leave Employment Requirements
A borrower’s employment history must meet a standard eligibility requirement which is typically a minimum of 2 years in the same field of work.
Borrowers must also document the amount of regular employment income prior to the temporary leave.
Any gap in employment during those 2 years, must be thoroughly documented to the lender.
The lender must also get a verbal and written verification of employment confirming the borrowers temporary leave status.
The lender must not receive any evidence or information from the borrower’s employer indicating the employee “would not have the right to return to work after the leave period”.
That information is contained in box # 11 and # 20 featured on a "verification of employment form" (“voe”)
The lender will verify the amount of income and the expected duration of the “leave” time.
Calculating Income for Qualifying
Borrowers intending to return to work by the date of the first (full) mortgage payment, the lender must consider regular (i.e. full) employment income for qualifying purposes.
If the borrower will not return to work by the first mortgage payment date, the lender must use the lesser of the temporary leave income OR regular employment income.
If the temporary leave income is less than the regular employment income, the lender may supplement the temporary leave income with available liquid financial reserves.
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