If a borrower claims tip income that is not fully reported on tax returns, what step should the MLO take when the income is supported by the tax return?

If a borrower claims tip income that is not fully reported on tax returns, what step should the MLO take when the income is supported by the tax return?

• A. Contact the employer to verify the tip income
• B. Tell the borrower to redo the taxes correctly
• C. If sufficient, use the income on the tax return
• D. Use the tip income anyway

Answer: (C)

When qualifying for a loan, rely on income that is fully documented and verifiable. If tip income is reported on the borrower's tax return and the amount shown is sufficient to meet the debt-to-income and housing payment requirements, you should use that income amount for qualification. The tax return is the official record that substantiates the income over time, which helps establish stability and reliability in the borrower's ability to repay. Using unreported tips or asking the borrower to redo taxes just to squeeze in more income would undermine the verification process and could misrepresent the borrower’s true ability to repay. If the tax return already provides enough tip income to qualify, there’s no need to pursue additional verification beyond what the tax documents show. If the reported amount isn’t sufficient, you would look to other stable, verifiable income sources or documented compensating factors rather than counting unreported tips.

When qualifying for a loan, rely on income that is fully documented and verifiable. If tip income is reported on the borrower's tax return and the amount shown is sufficient to meet the debt-to-income and housing payment requirements, you should use that income amount for qualification. The tax return is the official record that substantiates the income over time, which helps establish stability and reliability in the borrower's ability to repay.

Using unreported tips or asking the borrower to redo taxes just to squeeze in more income would undermine the verification process and could misrepresent the borrower’s true ability to repay. If the tax return already provides enough tip income to qualify, there’s no need to pursue additional verification beyond what the tax documents show. If the reported amount isn’t sufficient, you would look to other stable, verifiable income sources or documented compensating factors rather than counting unreported tips.