k. Active Military Applicant’s Income (continued)

Analysis:  Military Quarters Allowance

The lender may include a military quarters allowance in effective income if properly verified.  In most areas there will be an additional variable housing allowance, which can also be included.

·   The military quarters and variable housing allowances are not taxable income.

·   Ensure that the applicant meets the occupancy requirements set forth in section 5 of chapter 3.

Verification:  Subsistence and Clothing Allowances

Any subsistence (rations) and clothing allowances are indicated on the LES.

Analysis:  Subsistence and Clothing Allowances

The lender may include verified allowances in effective income.  These allowances are not taxable income.

Note:  The clothing allowance generally appears on the LES as an annual amount.  Convert it to a monthly amount for the loan analysis.

Verification:  Other Military Allowances

To consider a military allowance in the underwriting analysis, obtain verification of the type and amount of the military allowance, and how long the applicant has received it.

Analysis:  Other Military Allowances

Examples include propay, flight or hazard pay, overseas pay and combat pay.

·   All of these are subject to periodic review and/or testing of the recipient to determine continued eligibility.

These types of allowances are considered taxable income by the IRS, unlike housing, clothing and subsistence allowances.

Military allowances may be included in effective income only if such income can be expected to continue because of the nature of the recipient’s assigned duties.

Example:  Flight pay verified for a pilot.

If duration of the military allowance cannot be determined, this source of income may still be used to offset obligations of 10 to 24 months duration.