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Fannie Mae Guideline For Automobile Allowances and Expense A

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Fannie Mae Guideline For Automobile Allowances and Expense A

New postby Admin » Thu Sep 23, 2010 3:34 pm

Automobile Allowance

For an automobile allowance to be considered as acceptable stable income, a borrower must have received payments for at least two years. The lender must include all associated business expenditures in its calculation of the borrower’s total debt-to-income ratio.

Automobile allowances received for less than two years should not be used when calculating the borrower’s total debt-to-income ratio. However, this income may be used to justify a higher qualifying ratio.

There are two methods for calculating the income associated with an automobile allowance:

Actual cash flow approach:

If the borrower reports automobile allowances on IRS Form 2106 or IRS Form 1040, Schedule C:

Funds in excess of the borrower’s monthly expenditures are added to the borrower’s monthly income.
Expenses in excess of the monthly allowance are included in the borrower’s total monthly obligations.

If the borrower used IRS Form 2016 and recognized “actual expenses” instead of the “standard mileage rate,” the lender must look at the “actual expenses” section to identify the borrower’s actual lease payments and make appropriate adjustments.

Income and debt approach:

If the borrower does not report the allowance on either Form 2106 or Schedule C, the full amount of the allowance is added to the borrower’s monthly income, and the full amount of the lease or financing expenditure for the automobile is added to the borrower’s total monthly obligations.


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