doing a fha purchase, client has a base salary plus commission.  Underwriter is saying that we must use the last 2 years tax returns(06/07), take bottom line and divide by 24 to compute income and they will not consider any of the income from 2008.  My problem is she does a little side business like avon where in 06 she shows a loss of 26k which is lowering her income and now cant qualify.  she is no longer doing the side business but lender is saying they still must count the loss against her income.  If we can use year to date income at her job, which she has had for 6 years she qualifies.  So, can anyone help me determine exactly how the underwriter must compute income and why we cant use year to date for 2008. 

If your UW is adamant on using the deficient income from the past years, which it sounds like she is, I would write an LOE clarifying how that is his previous income, and YTD for 08 has been soley based off of his current position and SALARY, not hourly. I would then show her DTI with YTD figures, YTD with 2 year average, and a comparison of the 2 year average to the current YTD.

Average those two and hopefully your borrower still meets DTI, and she has nothing to argue. I have actually got an exact deal like this done for a client who had multiple incomes due to being a contract Engineer. The UW at CW Retail tried to pull the same thing and I got a current WVOE showing his salary and averaged it out with her 2 year calculation and we were good. 

thanks Justin, i have posted a few times fha questions and you have been all over em.  I really appreciate you taking the time to answer. 

We already have the VOE and are going to speak to the underwriter in the morning. 

Sweet. Handle it bud, always happy to give my .02!

Suggestion? In the future addess the income front and center with an explanation why you did the income the way you did, and as a side note, explain to her averaging salary would not be appropriate, nor would penalizing her for a business that is now defunct. (can you prove that? Disconnected telephone number, account or service no longer subscribed too, etc). You may have done a memo to file - and if so, you have an underwriter flexing the muscles. The object in the submission is not to make the Underwriter think. Make their lives easy and they will reach for your files every time. It sounds like she's shooting from the hip and now you are challenging her knowledge and ability. Go with an easy hand, but before you do, be sure you can address: Any write offs on the 1040's for the primary job? Your VOE has the breakdown for salary v. commission? If she has zero write offs on primary job, you have an excellent chance of using the YTD in the average (w/ prior years COMMISSION). If not, can't use unless you have a compelling reason. (change in company policy, company will now provide car in lieu of her write offs, etc) Can you document the other business is indeed gone? Accountant letter? Notification to local taxing authorities? You will need something. Distributor letter? If you can't prove a little loss of 26K is not going to happen again, that must be included. (No one loses 26K on Avon.....you need to give more details on this side job). There is nothing about this that screams impossible.....but if these things were not in the file, I think I understand where she is coming from. Flat averaging the income is standard when there is insufficient documentation and without the documentation, there was zero incentive to make the deal work. (you didn't give her anything to work with......telling her the business is gone, won't cut it). She threw it back at you to fix. She would have killed it if there wasn't a chance.

Let us know the lender, and the result.

If the borrower is Salary, you should be able to count 100% of that, w/o and deductions for 06 income. If you are also trying to use her comission from 06 and 07, that may be bring into play the AVON loss. Find out when employment with Avon ended, if it was before Oct. 14, 2006 then show that with VOE, and the UW can't hold it against you (you are now >2yrs away from that).