Yes, tip income can be used as part of your qualification, provided that these tips are properly reported. It’s important to note that any income NOT documented by a third party, such as paychecks, Verification of Employment (VOE) forms, or tax returns, cannot be utilized to qualify.
For all major agencies and program types, it is mandatory to substantiate tip income directly from the employer by using the borrower’s pay stubs and W-2 forms, VOE documentation, or a combination of these sources. What often goes overlooked is the IRS Form 4137, which employees receiving tips are required to use to disclose any tip income that their employer did not report. If the employee has reported these tips outside of their employer’s records, they can be considered for qualification.
In summary, tip income can be factored into your qualification as long as it has been properly reported.
For quick reference on the guidelines for tip income from each agency, please consult the following sources:
- Fannie Mae B3-3. 1-09
- Freddie Mac 5303.3
- FHA 4000.1 II.A.4.c.v
- VA Chapter 4, 2-H
- USDA 355.1 Attachment 9-A