QC Tips: Step Up and Qualifying Income
Minnesota Housing’s Quality Control (QC) team wants to help ensure your loans meet our program guidelines and reduce audit findings. The team reviews hundreds of loan files each year and our “QC Tips” series comprises their helpful advice and best practices.
Use an industry-standard qualifying income calculation to determine whether Step Up borrowers meet the program income limits. Step Up’s qualifying income calculation differs from the eligibility income calculation used with Start Up and Mortgage Credit Certificate (MCC) program loans.
If the borrower receives downpayment assistance, the borrower’s qualifying income must be under the Monthly Payment Loan income limits, which are less than the income limits for Step Up.
Example: A husband and wife are selling their starter home and purchasing a new home in the metro area for their family of four using FHA financing and Minnesota Housing’s Step Up program. The husband has poor credit, so the wife is the sole mortgagor.
Solution: Using only the wife’s income, you would calculate her income using an industry-standard qualifying income calculation, which in this example is based on FHA’s underlying product guidelines. The qualifying income calculation determines her income to be $105,000. Since this is less than Step Up’s income limit of $124,000, the family income qualifies for a Step Up loan. However, their income exceeds the limit for the Monthly Payment Loan, so they do not qualify for our downpayment assistance.