Severance Counting as Income?

[Anonymous]

Question:
I've been laid-off and will receive a long severance package. The timing is great for personal reasons.
I am looking at a home buying program and they have strict income requirements. I have to have made and make a certain amount but also can't go over another amount. It's a lower-middle income first time home buyers program.
I have found a new job but won't start for a couple of months.
My question is if when they pull my last two years of income up to the present if they will count my severance. I got a soft answer on the phone but wanted to ask the forum if anyone had experience with this situation.

And...GO!

[JVille]

All income is used to Bounce you from the program, in other words could cause you to make too much income BUT unless this income continues Guaranteed for 36 months AFTER closing it will not be used to Qualify you. Does that make sense. Kinda of a Damned if you do and damned if your don’t! It’s a catch 22 situation.

Some lenders may even required a longer guarantee than 36 months after COE.

[Anonymous]

I'm not sure I'm understanding.
So should I only work part-time for the next several months since I have this severance? 😕

[JVille]

You need to sit down with a sharp Mtg Broker and lay it all out. Let the LO explain what works. Severance pay that has an end (1yr, 3yr, etc) is great for you but is a problem when qualifying for a loan. And when you have a loan with an income ceiling it can be a double whammy. On one hand it pushes you over the income limits based on how the program is designed but is not usable as long term dependable income because it will going away (as an example) in 12 months. You have not shared so I’m guessing about the terms of your severance. So once again the program can use the income to disqualify you because of income caps, While the UW can’t use the income for qualifying purposes. Without more details I can’t do anything but guess. But as an UW with years of experience in State 1st Time buyer programs I have seen this scenario many times.

[Anonymous]

Gah! Thanks for the heads up. I am only submitting my paperwork now. My severance is for one years pay. I am taking the lump sum at the 45% withholding rate.
My layoff date is May 31st. Should receive severance the following week.
I am just hoping to cut ties and be done. Should I take the monthly stipend instead?

[Anonymous]

Your severance should only be taxed at 22% There isn’t even a 45% marginal tax bracket the highest is 37% at income over 510k.

[Anonymous]

It's the bonus withholding rate. It's not the tax. It's what my company withholds.
When tax time comes around I should get most of it back because, yes, I would not be in such a bracket. It's what they do for bonuses and lump sums to make certain enough is held for taxes.

[Revelate]

I'm not really understanding the problem other than if severance pay + income is above the line for the program you want.

Tax returns are filed and as long as your paystubs / bank statements qualify you under the income rules I don't see a problem... and a gap in employment isn't a deal killer even from the big banks in my experience, just explain it.  

Mine was literally: "A buddy and I were working on a new image compression algorithm, and five months into it Google open sourced a project that did what we were trying to do and there wasn't enough of a performance gain in ours to justify using it, so we killed it and I went and got a job."  Was all true in my case, but to be clear here I could've been working too.

Ultimately most lenders understand the racket and don't care as long as you can tick off the checkboxes without any can't touch issues: money is made in originating loans, not in denying them, so unless you are clearly broken it should be solvable. 

[Anonymous]

I was curious as to whether or not the severance would count and how that would affect an income specific program.
My question was somewhat answered by @jville who said:
"And when you have a loan with an income ceiling it can be a double whammy. On one hand it pushes you over the income limits based on how the program is designed but is not usable as long term dependable income because it will going away (as an example) in 12 months".

[JVille]

Do you need your income to qualify? Are you a two income family or a one income family? What is the Annual income limit for your household size or is it based on the county you live in.

1. Severance will count towards Max Income Cap
2. Your income even if taken monthly can’t be counted towards qualifying for DTI because it only lasts for 12 months. Not long term income.

So if your income isn’t needed to qualify AND even with your YTD income plus the Severance you still meet guidelines of program then you are possibly good to go.
Speak to a really skilled lender and have someone look at your situation.