Income Analysis Calculations & Configurations

Overview

To provide agency compliant qualifying income calculations, Income Analysis must use set calculation tolerances. In addition, it is configured to identify certain conditions to provide a controlled user experience. Identifying how calculations are chosen and how the system is configured positions you to get the most out of the application

Calculations

Income Analysis applies specific logic and calculations to generate agency compliant values. Knowing how these values are derived helps you interpret results accurately and recognize where they may differ slightly from your own practices.

Wage

Variable Pay

Year to Date (YTD) Start Date

The YTD Start Date is the date when the borrower began earning income for the current year being analyzed. Income analysis determines this date based on the borrower’s pay frequency or their employment start date, depending on the scenario.

Pay Frequency	YTD Start Date
Monthly and Twice Monthly	If the pay frequency is monthly or twice monthly, use January 1st of the paystub calendar year as the YTD Start Date. Example: If the paystub is from 2023, the YTD Start Date is 01/01/2023.
Weekly and Biweekly	If the pay frequency is weekly or biweekly, work backward from the paystub’s period end date in pay intervals until you find the last pay period beginning date in the previous calendar year. Example: If the borrower is paid weekly and the paystub shows a period end date of January 2, 2023, you would count backward one pay interval to find the last pay period start date in the previous year, which is December 26, 2022. Therefore, the YTD Start Date is December 26, 2022.
Employment Start Date During Same Calendar Year	If the borrower’s employment started during the same calendar year, use the employment start date from the Verification of Employment (VOE) or borrower application as the YTD Start Date.

In Income Analysis, you can reference the Year-to-Date (YTD) Start Date that was selected in the Wage Income section. You can expand the a borrower’s Paystub details to view the YTD Start Date. You can also view the YTD Start Date in the Editing Paystub Base Value pop-up by clicking the Edit button next to the Base earning category.

Year to Date (YTD) Number of Months

Income Analysis determines the YTD Number of Months using the following calculation(s):

Calculation 1	Partial YTD Start Months Imagine a borrower starts working partway through a month. To calculate their Partial YTD Start Month, we need to figure out what fraction of that month they actually worked. Here’s how it works: First, take the total number of days in the month. Then, subtract the day number of their Start Date from that total. Add 1 to include the Start Date itself (since they worked that day). Finally, divide this number by the total days in the month. This gives you the proportion of the month they worked. Example: Start Date = 12/23 Total Days in December = 31 ((31 – 23) + 1) days / 31 days = 0.290 Partial YTD Start Months.
Calculation 2	Full Calendar Months Calculate the number of Full Calendar Months between the borrower’s YTD Start Date and Paystub Period End Date. Example: 12/23 YTD Start Date, 6/9 Paystub Period End Date = 5 Full Calendar Months.
Calculation 3	Partial Period End Months Take the number of days the borrower worked (inclusive of their Paystub Period End Date) and divide by the total number of days in that calendar month. Example: 6/9 Paystub Period End Date = 9 days / 30 days = 0.3 Partial Period End Months.
Calculation 4	YTD Number of Months Add the Partial YTD Start Months, the Full Calendar Months and the Partial Period End Months. Example: 0.290 Partial YTD Start Months + 5 Full Calendar Months + 0.3 Partial Period End Months = 5.590 YTD Number of Months

Hourly Rate and Hours Selection

Income Analysis will calculate the borrower’s Hourly Rate and Average Hours using the following logic:

Identify the Earnings
Income Analysis will scan each paycheck to identify earnings where an hourly rate is shown, units (hours) are listed, and the pay type is not “Salary”.
Average the Hours
For each paycheck included, Income Analysis will add up the base hours (regular hours worked). Then, it will divide the total base hours by the number of paychecks you included to produce the borrower’s Average Hours.
Select the Hourly Rate
Income Analysis will take the minimum hourly rate for the base across all paychecks to get the Hourly Rate.

Wage Calculation Selection Waterfall (Non-variable)

When determining a default income calculation from all the documents provided, Income Analysis uses a series of comparisons using configurable tolerances within the waterfall. The wage calculation selection works like a bracket system, guiding which wage calculation is selected during the comparison.

The purpose of this process is to establish a defensible baseline calculation. From there, the underwriter can make documented, supportable adjustments to help qualify the borrower.

Configurations

Default Tolerance

Configurations

The default tolerances for each comparison are individually configurable to align with your lending requirements and can be easily updated by our Product Team upon your organization’s request. They include:

Paystub 1 (most recent) vs Paystub 2 comparison (10%).
Paystub Current vs Paystub YTD (10%).
Paystub Total vs W2 Year 1 (10%).
Paystub vs VOEI Selection (10% only when the Paystub is lower).
Alternative Option: Income Analysis will compare the paystub check date to the VOEI date and select the most recent.

Paystub vs VOEI Pay

Comparison Logic

Calc Paystub Total: Add up baseline calculations for Base, Commission, Bonus, Overtime and Other.
Calc VOEI Total: Add up baseline calculations for Base, Commission, Bonus, Overtime and Other.
If PS Total < (VOEI Total – 10%) then fall back to PS Base regardless of whether more/less than VOEI.
1. For each Variable Pay (Commission, Bonus, Overtime, and Other) select the lesser of PS or VOEI.
If PS Total > (VOEI Total – 10%) utilize VOEI calculations for all pay types.

The intent of this method is to treat the Verification of Employment and Income (VOEI) as the primary source of truth from the employer, and only use the Paystub (PS) in exception cases. Because there are many possible combinations of baseline calculations across different pay types, we sum all the conservative calculations and review the full compensation to determine if there’s a reason to fall back.

Additionally, when relying on a simple base-to-base comparison, unusual paystub earning descriptions may be categorized as ‘Other’ instead of ‘Base.’ This can trigger unnecessary red flags, even when a complete VOEI is available with a stated Rate of Pay (RoP) and an Overtime (OT) breakdown for support.

Electable Rules

As a lender, you can elect to apply rules such as:

Always use the current (most recent) paystub.
Always use the Verification of Employment and Income (VOEI).
Always use Year-to-Date (YTD) for borrowers that are paid hourly.

The Variable Pay Calculation selection for Commission, Bonus, Overtime, and Other income from the Verification of Income (VOI) is designed to account for trends within the borrower’s compensation history. The goal is to determine the income amount most likely to continue into the future. The underlying logic is outlined in the table below.

Note that Income Analysis will automatically calculate the number of year-to-date (YTD) months, recent year (Y1) months, and prior year (Y2) months based on the borrower’s start date. The underwriter retains the flexibility to make adjustments, when supportable, to assist in qualifying the borrower.

Monthly Conditions	YTD Months	Y1 Months	Y2 Months	Default Formula	Calculation	Amount
Months in year	5 months	12 months	12 months	Note: Calculations use total dollars and total months
YTD>(Y1∗TolHigh) AND Y1>Y2	$2,000 ($10,000 YTD / 5Mo) = $2,000	$1,500 ($18,000 Y1 / 12Mo) = $1500	$1,000 ($12000 Y2 / 12Mo) = $1000	(Y1+Y2) / (Y1 Mos+Y2 Mos)	($18,000+$12,000) / (12+12)	$1,250
YTD>(Y1∗TolHigh) AND Y1<Y2	$1,000 ($5,000 YTD / 5Mo) = $1,000	$100 ($1,200 Y1 / 12Mo) = $100	$200 ($2,400 Y2 / 12Mo) = $200	Y1 / Y1 Mos	$1,200 / 12	$100
YTD<(Y1∗TolLow)	$500 ($2,500 YTD / 5Mo) = $500	$1,000 ($12,000 Y1 / 12Mo) = $1,000	Any	YTD / YTD Mos	$2,500 / 5	$500
YTD and Y1 InTol AND Y1>Y2	$1,050 ($5,250 YTD / 5Mo) = $1,050	$1,000 ($12,000 Y1 / 12Mo) = $1,000	$900 ($10,800 Y2 / 12Mo) = $900	(YTD+Y1+Y2) / (YTD Mos+Y1 Mos+Y2 Mos)	($5,250+$12,000+$10,800) / (5+12+12)	$967
YTD and Y1 InTol AND Y1<Y2	$1,050 ($5,250 YTD / 5Mo) = $1,050	$1,000 ($12,000 Y1 / 12Mo) = $1,000	$2,000 ($24,000 Y2/12Mo) = $2,000	(YTD+Y1) / (YTD Mos+Y1 Mos)	($5,250+$12,000) / (5+12)	$1,015

YTD vs Y1 Comparison Tolerances

For the YTD vs. Y1 comparison, each variable pay category (Commission, Bonus, Overtime and Other) has its own configurable tolerance settings for “TolHigh and “TolLow”. These settings can be adjusted as needed:

Tolerance High – the maximum percentage the YTD amount is allowed to be higher than Y1
Tolerance Low – the maximum percentage the YTD amount is allowed to be lower than Y1

Income Analysis default settings are:

Tolerance High: 10%
Tolerance Low: 0%

Calculation Selection Example	Edit Period Start and End Date(s) or Selected Calculation Example
The calculation selected during analysis is indicated by a radio button. Underwriters can adjust the selected calculation or the period start and end dates by clicking Edit.	The Edit pop-up displays the full history for the selected item. From this view, Underwriters can: Edit Period Start and End Dates (Per Start / Per End): Updates made here will automatically trigger a recalculation of the Num month (number of months) value. Select an Alternative Calculation: Choose a different calculation from the Select Calc dropdown menu to apply it to the income source..

Calculation Selection Example

Edit Period Start and End Date(s) or Selected Calculation Example

The calculation selected during analysis is indicated by a radio button. Underwriters can adjust the selected calculation or the period start and end dates by clicking Edit.

The Edit pop-up displays the full history for the selected item. From this view, Underwriters can:

Edit Period Start and End Dates (Per Start / Per End): Updates made here will automatically trigger a recalculation of the Num month (number of months) value.
Select an Alternative Calculation: Choose a different calculation from the Select Calc dropdown menu to apply it to the income source..

Configurations

General

Encompass®

Task List: LO Defaults

The following configurations apply to all Income Analysis accounts, regardless of loan origination system (LOS).

Name	Description	Default
Verbose Mode	Display all messages inline, or collapse them into sticky notes with hover details.	No
Comments Required	Require comments in self employed cashflows when each value is updated.	Yes
Display Current Ratio	Liquidity Ratios: Display both the Current Ratio (including inventory) and the Quick Ratio for each business in the interface.	No
Profit & Loss Overrides Cashflow if Lower	Income Analysis captures simple Net Income directly from the Profit and Loss (P&L). If the monthly Net Income on the P&L is lower than the calculated monthly Net Income from Cash Flow, the P&L value is automatically selected.	No
Default to 10 Months for Teacher Pay	If the employer name contains “school” or “board of education” (including variations), default to a 10‑month calculation. Otherwise, add the item to the Task List for review.	No
Include Current Social Security by Default	Automatically include Social Security Income when an Award Letter or 1099 is received, rather than creating a separate opportunity.	No
Include “Ensure Profit & Loss Capture” in Task List	Create a task to remind the user to request and compare P&Ls for all businesses.	No
Auto Merge Multi-Year Paystubs	When paystubs are submitted for multiple years, automatically calculate average monthly income, including YTD, for both current-year and prior-year paystubs for variable pay types (Bonus, Commission, Overtime, and Other).	Yes
Isolate Paystub Tip in Other	If a paystub includes any “Other” earnings item containing the word “TIP,” automatically reclassify all non‑TIP “Other” earnings as Excluded, so the “Other” category contains only tip income.	No
Default PS Earning Details to Quick View	Set the Paystub Earning Details section in the Paystub Edit popup to display the Quick View by default, allowing users to compare earnings across all paystub years side by side. Users can still switch to the Detailed View, which displays all paystub line items in a list format with the check date shown in the last column.	No

The following additional configurations apply only to Encompass‑integrated accounts.

Name	Description	Default
Send Fannie Accepted PDF to eFolder on Publication	Upon initial publication of the analysis, automatically generate and upload a PDF income report to the eFolder.	No
Send Email only to the Requestor for EPC Loans	Sends notification emails only to the Requestor for EPC loans. If unchecked, notification emails are also sent to the Loan Officer, Underwriter, and Processor contacts in Encompass.	No

The table below shows the default access level for each Task List item for the Loan Officer role. You can configure each item as Read Only, Hidden, or Editable, depending on how involved you want the Loan Officer experience to be.

General Tasks	Description	LO Default Permission
App Date	Enter the application date for document age verification.	Editable
DU Casefile ID	Review and update the DU Casefile ID when missing to ensure Fannie Mae representation and warranty relief.	Editable
Confirm EPC Income Source Matching	Review and edit a table that maps documented income sources and amounts in Income Analysis to the corresponding income sources in the LOS. This mapping is used when you click “Update LOS”.	Editable
Update Missing Documents	Review and update the status of missing documents listed.	Editable
View Data Capture Comment	Review comments related to the status of uploaded PDF documents, such as cutoff or incomplete files.	Read Only
View Tax Return Comment	Review comments related to the status of tax returns, such as signature and date validation or comparison to transcripts.	Read Only
View Opportunity List	Review opportunities to increase income through additional documentation and conditions. Underwriters can view the selections made by Loan Officers.	Editable for “LO Adjusted” values
Wage Related Tasks
Wage Summary	Review all wage sources side by side in a table view. Hover over figures to view calculation formulas. Mark employers as active or inactive, and select an alternative calculation when supported by documentation.	Calculation is un-editable. Active/Inactive statuses are editable
Match Orphan W2s with Paystubs	Allows unmatched paystubs and W‑2s to be matched even when employer names differ.	Editable
Multi-Year Paystubs (Variable Pay)	Identifies paystubs from prior years and evaluates variable pay in accordance with credit policy. Supports selection of multi‑year calculations for Bonus, Commission, Overtime, and Other income types.	Read Only
Potential Teacher Pay	When the employer name contains “School” or “Board of Education,” including variations, review the income for potential use of a ten‑month calculation.	Read Only
Paystub Other Earning Assignment	Review paystub earnings categorized as “Other” to determine whether they should be reassigned to “Base” income or “Excluded”.	Read Only
Paystub Deductions	Review Loans or Garnishments indicated on the Paystub.	Read Only
Paystub for Potential SE Company	A paystub exists without a corresponding W‑2, and self-employment income is present. The names do not match; review and exclude if appropriate.	Editable
Inactive VOIs in Prior 2 Years	Inactive VOIs are present within the past two years. Review base and variable pay to assess pay history.	Read Only
Merge Active-Inactive VOEs	Active and inactive VOEs exist within the prior two years. Optionally create two-year calculations that combine the employers.	Hidden
Freddie Mac AIM Confirm Employment Start Dates VOE	If a VOE was ordered for the loan and OCR captured one or more companies and/or borrowers, then the VOE employment date(s) values will be populated.	Read Only
Freddie Mac AIM Confirm Employment Start Dates 1003/LOS	For this task, enter the employment start date for each company and borrower.	Editable
Freddie Mac AIM Reference Number	Income Analysis will automatically populate these fields with the most current AIM Reference Number.	Read Only
Self Employment Related Tasks
Confirm Business Start Dates	Confirm business start dates.	Editable
View Fannie Mae Manual Options	View available "Fannie Mae Manual Options" that can be adjusted and resubmitted for Rep and Warrant (R&W).	Read Only
Match Self Employed Companies	Identify companies missing current or prior-year records that may need to be matched.	Editable
Update Business Ownership from 0%	If business ownership was unable to be determined from the documents and can be verified.	Read Only
Resend Freddie	When calculations are updated, regenerate and post the data file for Freddie Mac, then rerun LPA.	Editable
Ensure Profit and Loss Capture	If your Credit Policy requires P&L data in addition to tax history, ensure those details are entered. Only basic data is captured by default.	Read Only
Rental Related Tasks
Update PITIA	Update the current PITIA for each investment property as the tax returns only provide ITIA. If you are an Encompass-integrated user, then this information is automatically updated from the linked liability.	Editable
Rental Matching	Address variations may prevent automatic matching; review single-year items for potential matches.	Editable
Confirm Fannie Mae Rental Attestation	Generate a trial PDF report to review all final calculations and supporting documentation. Upload the version you want to the LOS when you are ready.	Editable

Outcome

You can explain how Income Analysis calculations are chosen and how the system is configured, positioning yourself to get the most out of the application.