Determine mortgage income for travel nurses

The effects of COVID-19 are still being felt in the economy in many ways, like housing shortages, missing chips to sell new cars, and getting contractors for household renovations. Here is a weird one that I personally experienced in the condo I live in, where I am on the board: we hired an asphalt company to redo the blacktop and add new curbs to our common parking.  Well, we got about halfway done and had to put the job on hold until spring 2023 due to the lack of the mix to make cement. Talk about something out of left field!

Another trend I am seeing in the loans coming into our IncomeXpert PLUS system for calculation is travel nurses.  Travel nurses are not a new thing, but the amount of travel nurses has definitely increased.  This increase is tied to the amount of strain put on the medical system over the last few years and the shortage of nurses to care for patients in different markets.

What is a Travel Nurse?

Travel nurses routinely jump into roles in understaffed healthcare settings. Facilities expect them to perform all the duties of a traditional nurse with little to no context for care. Because of this, travel nurses must become comfortable with working in extremely fast-paced, chaotic environments.

For example, a travel nurse may take an assignment at a severely understaffed neonatal intensive care unit. The nurses on staff may not have the time or bandwidth to explain all aspects of the hospital charting system or details about specific patient, and travel nurses may need to pick these details up as they go.

Travel nurses sign a contract to fill a temporary position. This can last several days, weeks, or months — or longer. When contracts end, travel nurses either extend their stay at the same location or move on to a new destination and opportunity. The length of their contracts can vary, although most placements are between eight and 26 weeks. Some travel nurses find a temporary assignment they enjoy and work to secure a full-time position, but many continue to travel and keep flexible working hours.

Are Travel Nurses Employed Or Self-Employed?

Travel nurses can either be self-employed or employed. Self-employed travel nurses will typically use a Schedule C to record their income and expenses. If you find your borrower is a self-employed travel nurse, you would follow the same guidelines as you would for anybody that is self-employed as a sole proprietor.  In other words, you would use a Schedule C tax form to report their income.

If your borrower is employed by a travel nurse company or another healthcare entity that offers travel nursing programs to different hospitals, the guidelines do not have a section that directly talks about calculating income for travel nurses who are employees, but they do provide the framework we need to get an accurate income to approve this group of borrowers. The framework is what I like to call the “four requirements of all mortgage income,” which are:

1. Income must reasonably continue for 36 months
2. Income must be stable to qualify
3. Income must meet history requirements to qualify
4. Income must be documented to qualify

Using these four requirements, let’s go through how to determine travel nurse income.

Requirement One – Income must reasonably continue for 36 months to qualify

This is where I’ve had some disagreements with some underwriters on different loans sent into our support box here at Blueprint. These underwriters’ position is that you cannot use travel nurse income because the contracts don’t last for the full three years to meet the reasonability requirement.

In contrast, my position is the guidelines state income must reasonably continue for 36 months to qualify. That does not mean the same job or contract. It means staying in the same line of employment and type of employment.  If the borrower has a history of travel nursing for 2 years, that is evidence that as one contract ends they seek and find a new contract to keep employed.

If you check the guidelines, when it talks about incomes that do not reasonably continue past three years, they fall more in the lines of child support, asset depletion, limited benefits, or things that have a definitive end that you can’t just simply reset. For example, if your child support ends in 24 more payments, there’s no way for you to reset the child’s age and continue child support in the future.

So my opinion on the reasonability test is if your borrower has a two-year history of being a travel nurse, unless there’s something in the loan that says that’s going to stop, you can reasonably assume it will continue for 36 months.

Requirement Two – Income must be stable to qualify

Since travel nurses may have multiple pay stubs from multiple employers in the course of any year, the loan officer must take care and be sure to gather all of the ending paystubs for each employer during the current year. In addition to that, for the previous two years, the loan officer is to collect all of the W-2s from all of the different assignments to properly add up the income.

After you have all this data, you would follow the standard  income tending analysis guidelines  to show stability and income.  There are additional considerations to think about as you review these multiple pay stubs and W-2s.  A travel nurse will have other items outside a base pay listed on their pay stub, for example, per diem and possibly bonuses for start up.  My advice is to only use the base pay, any shift premiums, and overtime that are properly averaged out.   I would not recommend using per diems because that’s an expense reimbursement for the travel and living expenses.  I would also avoid using the bonuses because many of those bonuses are not ongoing and are one-time bonuses for starting contracts.

Requirement Three – Income must have proper history to qualify

Standard guidelines generally outline a two-year history for any employment. I have seen some loans come in where a borrower has a long history of being a nurse but has recently changed to a travel nurse.   This is where some things can be a bit gray. In my opinion, I would not approve less than one year of a travel nurse history because travel nursing and nursing are two very different lifestyles. If you qualify the borrower on the higher pay rate that travel nurses earn, and they change their mind and go back to a fixed position in nursing, that may make their bills unmanageable and result in foreclosure. 

Requirement For – Income must be documented to qualify

Doing a thorough job on collecting all of the current year-to-date pay stubs, which again may be multiple employers as stated above in requirement two, and all the W-2s (even better, VOE/VOI’s) for the last two years are key to a proper underwriting evaluation.

We hope this basic explanation will assist when you have borrowers that are a little more complex than the typical borrower.  Getting each loan that you can approved is key to long-term viability in the mortgage industry.  We offer a great tool to help you with all the income types. Go to our website at www.getblueprint.io to check out IncomeXpert!