Truth in Foreclosure

I’ve been asked many times what you should do if you have irregular income and you’re applying for a loan modification.  How should you report it in the forms to accurately reflect your situation.

In the end, the decision of how to handle irregular or non-standard income in a HAMP mod is up to the lender and their business rules.

However, the HAMP program did put out this guidance to give lenders somewhere to start and let them know what the intent of the HAMP is.

Lenders could:

• use the current income documentation when there is a discrepancy between tax returns and current income documentation if the borrower has changed jobs or has had a substantial pay cut;
• use the information from the tax transcript obtained via form 4506-T when differences exist between the transcript and the tax return provided by the borrower;
  
• when Schedule E is not available to document rental income because property was not previously rented, accept a current lease agreement and bank statements or cancelled rent checks; and
• when two paystubs indicate different periodic income, use year-to-date earnings to determine the average periodic income.

But What About Tips or Other Cash-based Income?

Honestly, it’s up to your lender how they want to handle income that you can’t prove through a W-2, a pay stub, or some other ‘official’ means.

As you know, this can be real trouble because it’s likely that if you’re paid much of your income in cash, you probably didn’t claim it all and your employer had no real way to track it either.  The best you could hope for is if you deposited the money into your bank account on a regular basis…you could explain that and they could see it on your statements.

But that’s probably unrealistic too…most people that get paid in cash use that cash to buy groceries or pay a bill without depositing it in the bank.

Maybe you could go back through your bills for the past year and figure out the difference between how much you paid in bills and how much income you can prove?

It’s possible (not sure how likely) that your lender could accept this as well.

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