CRU Income & Employment Verification 1 — Questions and Answers
Question 1: For a salaried borrower, how many years of W-2s does Fannie Mae typically require to document employment income?
- One year
- Two years (Correct answer)
- Three years
- Five years
Correct answer: Two years
Fannie Mae standard guidelines require two years of W-2s to establish a consistent history of salaried income.
Question 2: A borrower has been self-employed for 18 months. Under standard agency guidelines, how is this income typically treated?
- It may be used if supported by 12 months of bank statements
- It cannot be used until the borrower has a two-year self-employment history (Correct answer)
- It is averaged over the 18 months of tax returns available
- It is fully acceptable with a signed CPA letter confirming stability
Correct answer: It cannot be used until the borrower has a two-year self-employment history
Agency guidelines generally require a two-year self-employment history before that income can be used for qualifying purposes.
Question 3: Which document is the primary tool used by underwriters to verify a borrower's year-to-date earnings from an employer?
- 1040 tax return
- Pay stub (Correct answer)
- VOE (Verification of Employment)
- Bank statement
Correct answer: Pay stub
A recent pay stub shows current YTD earnings and is the primary document for verifying current income levels.
Question 4: When calculating qualifying income for an hourly employee who works variable hours, the underwriter should:
- Use the rate stated on the most recent pay stub multiplied by 40 hours
- Average the income over the most recent two-year period (Correct answer)
- Use only the base guaranteed hours per the employment contract
- Exclude overtime and use only the base hourly rate
Correct answer: Average the income over the most recent two-year period
Variable income for hourly workers should be averaged over two years to account for fluctuations in hours worked.
Question 5: A borrower receives bonus income of $12,000 in one year and $8,000 the prior year. The current base salary is $60,000. What qualifying income should the underwriter use?
- $60,000 only, as bonus income is not stable
- $70,000 ($60,000 base + $10,000 averaged bonus) (Correct answer)
- $72,000 ($60,000 base + $12,000 current bonus)
- $68,000 ($60,000 base + $8,000 lower bonus)
Correct answer: $70,000 ($60,000 base + $10,000 averaged bonus)
Bonus income that has been received for two years may be averaged and added to base salary to determine qualifying income.
Question 6: A borrower is a commissioned salesperson earning 100% commission. What documentation is typically required beyond pay stubs?
- Only a letter from the employer confirming the commission structure
- Two years of personal tax returns to verify commission income (Correct answer)
- A one-year profit and loss statement signed by a CPA
- Three months of bank statements showing commission deposits
Correct answer: Two years of personal tax returns to verify commission income
For borrowers earning 100% commission, two years of personal tax returns are required to verify the consistency and stability of that income.
Question 7: Under agency guidelines, how long must a borrower typically be in a new job position before that income can be used for qualification?
- The income can be used immediately upon start date with an offer letter (Correct answer)
- 30 days of paystubs are required before use
- Six months in the position is required for all borrowers
- One full year in the new role before qualifying
Correct answer: The income can be used immediately upon start date with an offer letter
If the new job is in the same field and an offer letter or employment contract confirms the income, it may generally be used immediately at loan closing.
CRU Income & Employment Verification 1
For a salaried borrower, how many years of W-2s does Fannie Mae typically require to document employment income?