Income Determination Definition –

Gross Annual Income is the anticipated total income, from all sources and before taxes or
withholding, of the mortgagor(s), the spouse of a mortgagor, and any other adult person who
lives in the Residence being financed or who is secondarily liable on the Mortgage Loan. Based on
income information received through the loan application process, household income shall be
projected for the 12-month period following the date of application.

All income should be included, whether received by check, in cash, or in the form of goods and
services. Income includes, but is not limited to, the full amount, before any payroll deductions, of
wages and salaries, overtime pay, commissions, fees, tips and bonuses, and any other
compensation.

Eligible Borrower Gross Annual Limits

The Board establishes income limits for each program, based on the Internal Revenue Code of
1986, as amended. Lenders need to refer to each individual program's documents for Gross
Annual Income Limits.

Those persons' incomes included in determining Gross Annual Income are those who are
expected to live in the residence or who will be legally responsible for the payment of the loan
for the residence to be financed by the Board. For example, two unrelated persons who are
planning to live in the residence would provide data on both incomes if both are expected to sign
the note or, through a side agreement, have arranged to share responsibility for payment.
Similarly, a relative who gives a guarantee of the loan and expects to live in the residence must
give income information. For these purposes, husbands and wives will be considered jointly
responsible for the loan and residents of the dwelling, absent satisfactory evidence to the Board
of Housing which conclusively demonstrates otherwise and that the spouse is not a member of
the armed services. By contrast, a guarantee by a relative, such as a parent or in-law, who does
not intend to live in the residence except as an occasional guest, will not cause the inclusion of
that relative's income. Similarly, the income of a parent, grandparent, or other relative (except a
spouse) who qualifies as a dependent and is expected to live in the home, but will not be legally
responsible for the loan, does not need to be included.

Income Calculations - Salaried Borrowers

In calculating the income of each borrower, the lender shall project each borrower's verified
gross monthly income over twelve (12) months following the date the application is made.
Projected salary increases which are verified by the employer shall be included in the income
calculation. Overtime earnings shall be included when calculating the borrower's gross annual
income. To calculate the amount of overtime earnings used to determine the borrower's income
eligibility, the Lender shall use the total amount of overtime earnings received by the borrower
for the preceding 12-month period. The Lender shall also use tips, fees, bonuses, dividends and
profits, interest and insurance payments received by the borrower for the preceding 12-month
period.
Income Calculations - Self Employed Borrower

Self employed persons shall submit their I.R.S. tax returns (including any depreciation
schedules) for the previous two (2) years. Each borrower shall certify that each return is a
complete, true and exact copy of the original submitted to the I.R.S. Business income that
cannot be supported by an income tax return shall not be included in the income calculations.

If the borrower is a partner in a partnership or has an ownership interest in a small corporation

The lender shall calculate the gross annual income for each self-employed borrower by averaging
the reported net income plus declared depreciation expense for the previous two (2) years.

If the borrower is self-employed for less than two (2) years, the most recent year's tax returns
with all schedules, plus a current year-to-date professionally prepared profit and loss statement,
together with a one (1) year projected income statement must be submitted.

Commission Income

Income derived from commissions may be substantiated from at least two (2) years tax returns
with all schedules. The average of the past two (2) years' commissions will be used to calculate
income.

Other Income Included

As part of the determination of a borrower's eligibility, other income which the borrower must
disclose on the Income eligibility Worksheet shall include:

Child support; alimony or separate maintenance payments; periodic payments from trusts,
annuities, inheritance, insurance policies, pensions, retirement funds, and lotteries; all public
assistance payments (excluding Medicaid and food stamps) including any amount by which
educational grants, scholarships, and/or Veterans Administration educational benefits exceed
expenses for tuition, fees, books, and equipment and reasonable rent and utility costs for a
student living away from home; recurring investment income, not including gains on a one-time
sale or any gains from the sale of the borrower(s) prior residence; all public assistance
payments; payments in lieu of earnings, including social security, unemployment benefits,
worker's compensation, severance pay, disability or death benefits; income from partnerships;
undisbursed profits from business owned by borrower(s) in whole or part; regular cash
contributions received from persons not living in the household.

Other Income Excluded

As part of the determination of a borrower's eligibility, the following types of income shall not be
included:
Income from employment of children (including foster children) under the age of 18 years;
payments received for the care of foster children or foster adults; lump sum additions to
household assets, such as inheritances, insurance payments (including payments under health
and accident insurance), settlement for personal or property losses; amounts received by the
household that are specifically for, or in reimbursement of, the costs of medical expenses for any
household member; income of a live-in aide; amounts of educational scholarships paid directly to
the student or to the educational institution, and amounts paid by the Government to a veteran,
for use in meeting the costs of tuition, fees, books, equipment, materials, supplies,
transportation, and miscellaneous personal expenses of the student provided that any amount of
such scholarship or payment to a veteran not used for the above purposes that is available for
subsistence is to be included in income; amounts received by a participant in other publicly
assisted programs which are specifically for or in reimbursement of out-of-pocket expenses
incurred (special equipment, clothing, transportation, childcare, etc.) and which are made solely
to allow participation in a specific program.

10/10/18