Chapter 1
Federal Mortgage Laws and Consumer Protection Regulations
Course: Safe Mlo Prep
Subject: Safe Mlo Prep
Chapter: Mortgage Loan Origination Activities
OVERVIEW
Accurately documenting and calculating qualifying income is one of the most complex and high-stakes aspects of mortgage underwriting. The type of income, how it is documented, and how it is calculated varies significantly by income source. MLOs must understand the documentation requirements for each major income type.
- W-2 Employment Income
For borrowers employed by a company and receiving W-2 forms:
- Documentation required: Most recent 2 years of W-2s and 30 days of current pay stubs
- Base salary: Used in full — documented through pay stubs and W-2s
- Overtime and bonus income: May be used if it has been received consistently for 2 years and is likely to continue — averaged over 2 years
- Commission income: Averaged over 2 years — requires documented history of receipt
- Part-time income: May be used if the borrower has maintained the part-time job for at least 2 years