Eligibility and Qualifying Income Reference Guide

Start Up Eligibility Income Guidance

Definition: The income reviewed to verify the Borrower(s) eligibility for the Start Up program (i.e. Following Mortgage Revenue Bond income guidance in the Start Up Eligibility Income Worksheet).

Loan Officer takes application with Borrower:

• Determine if the Borrower is a first-time homebuyer
• Gather necessary documentation from the Borrower (income and assets) to determine eligibility for the Start Up Program
• Select an underlying mortgage product (Conventional, VA, FHA, Rural Development)

Lender Completes Start Up Eligibility Income Calculation:

• Complete the Start Up Eligibility Income Worksheet– Include income from the following people:
  • Each Borrower and anyone who will be on title, sign the mortgage, and the note.
  • The legal Spouse of a Borrower who will live in the property.  If the current legal spouse will not be living in the subject property, their income is not included in the eligibility calculation. The Non-Occupant Spouse Statement can be used to document this.
  • Anyone signing the Note who will not be on title but is expected to live in the property (i.e. an occupant co-signer) 
• Non-occupant co-signer income is not used in the Start Up eligibility income calculation as they are not a borrower, will not be living in the property, and they are not on the mortgage.
• Occupant co-signer income is used in the Start Up eligibility income calculation as they are living in the property, and will sign the note, but will not be on title and will not sign the mortgage.
  • Important Reminder: An occupant co-signer must be a first-time homebuyer.
• Follow the Start Up Eligibility Income Worksheet for guidance on income to include or exclude from the calculation. (Located in Minnesota Housing’s Lender Toolkit)
• Lender must review bank statements for deposits and provide an explanation addressing whether deposits are additional income sources or not. Use the Start Up Eligibility Income Worksheet to determine whether any such income sources need to be included in the Start Up program eligibility income calculation. 

Start Up Eligibility Income Guidance: Include and Exclude: 

Review Income Limits on the Minnesota Housing website:

• Review the Start Up or Step Up Income Limits by household size and property location
• Review Income Limits for the Downpayment and Closing Cost Loan, if applicable
  • Deferred Payment Loan and Deferred Payment Loan Plus (DPL/DPL+): Review the DPL/DPL+ income limits by household size and property location.
  • Monthly Payment Loan (MPL):
    • MPL with Start Up: Use Start Up limits
    • MPL with Step Up: Use Step Up limits

Prior to Closing:

• Update the Start Up Eligibility Income Worksheet and the Commitment System with any changes to the income PRIOR to closing.

Qualifying Income Guidance

Definition: The income used to qualify the Borrower for the loan for repayment of the note. 

Qualifying income is income used to underwrite the loan:

• Calculate qualifying income (income listed on the URLA) based on the guidelines for the underlying program selected (Fannie, Freddie, FHA, VA or RD).
• Enter qualifying income into the AUS (DU/LPA/GUS) to obtain findings.
• Enter the monthly qualifying income into the Minnesota Housing commitment system
• Enter the Housing Ratio and the Qualifying Debt Ratio into the Minnesota Housing commitment system
  • Note: Both the DPL and DPL+ have a 25% minimum housing ratio requirement, which is based on the qualifying income. For further guidance see Section 7.11 of the Start Up Manual.
• Underwriter reviews the loan file based on the product selected (Fannie, Freddie, FHA, VA, or RD)

Non-Occupant Co-signer: 

Income and assets from a non-occupant co-signer can be used for qualifying.

Make sure to include the non-occupant cosigner’s income in the monthly qualifying income you enter in the Commitment System.

The non-occupant co-signer does NOT go into title, does NOT sign the mortgage(s), and does NOT sign any of the Minnesota Housing documents other than the 2nd note, if applicable.

Qualifying income determines Conventional MI Premium: 

• Review your AUS findings to determine if your Borrower’s qualifying income is under 80% of the Area Median Income (AMI).  Use the Fannie Mae Look Up Tool or the Freddie Mac Eligibility Tool to review AMI limits for a specific area.  
• Borrowers whose qualifying income is under 80% of the Area Median Income are eligible for charter-rate MI (see chart below) 

Fannie Mae HFA Preferred and Freddie Mac HFA Advantage:

Step Up: The Minnesota Housing Step Up loan does not have a separate eligibility income calculation.

• Use only monthly qualifying income X 12 months to determine if Borrower is within the Step Up income limits posted on the Income Limits webpage.
• Note: The income limits for Step Up are higher than for Start Up. 

Entering Income into the Commitment System

Entering income for Start Up:

• Minnesota Housing Eligibility Income:
  • Enter the annual income calculated following the guidance in the Start Up Eligibility Income Worksheet to validate the Borrowers are eligible for the Start Up program.
• Monthly Qualifying (URLA) Income: 
  • Enter the monthly amount being used to qualify the loan for the underlying mortgage product (i.e. URLA or AUS income). 

Entering income for Step Up:

• Minnesota Housing Eligibility Income:
  • Leave Blank. For Step Up this field auto-populates based on 12 months x Monthly Qualifying (URLA) Income.
• Monthly Qualifying (URLA) Income:
  • Enter the monthly amount you are using to qualify the loan for the underlying mortgage product (i.e. URLA income).  

Tips and Questions

Tips:

• Use the Start Up Eligibility Income Worksheet and document your work.
• For Start Up eligibility income, do not use worst case scenarios. Annualize the income – do not project.
• Review the income with your underwriter if you have questions.
• Update income in the Commitment System prior to closing.
• Be sure you have an updated commitment prior to a clear to closing.