How is "Income" Defined in Debt-to-Income (DTI) Ratio?

[Manson C.]

A family member of mine is looking to get a Fannie Freddie loan for an investment property. He had a stable job in the same industry for the previous 20 years, but was unemployed for the past 18 months. About a month ago he got a new job in the same industry again.

I was told that in order to qualify for Fannie Freddie loan, DTI ratio needs to be under 45%. The question is: How is income counted for him?

Scenario #1: 

If you look at the income from his new job's paystub for the past month x 12, his DTI will be under 45%. Hence - Qualified.

Scenario #2: 

If you look at his last year's W2 or his year-to-date income, his income has been zero until he started his new job a month ago. DTI will be above 45%. Hence - Not qualified.

Scenario #3: 

If you look at his employment history before he was unemployed, he was having stable income for 20 years. DTI was under 45%. Hence - Qualified.

Which scenario is true when lender calculates DTI ratio?

Thanks.

[Albert Bui]

Originally posted by @Manson C.:

A family member of mine is looking to get a Fannie Freddie loan for an investment property. He had a stable job in the same industry for the previous 20 years, but was unemployed for the past 18 months. About a month ago he got a new job in the same industry again.

I was told that in order to qualify for Fannie Freddie loan, DTI ratio needs to be under 45%. The question is: How is income counted for him?

Scenario #1: 

If you look at the income from his new job's paystub for the past month x 12, his DTI will be under 45%. Hence - Qualified.

Scenario #2: 

If you look at his last year's W2 or his year-to-date income, his income has been zero until he started his new job a month ago. DTI will be above 45%. Hence - Not qualified.

Scenario #3: 

If you look at his employment history before he was unemployed, he was having stable income for 20 years. DTI was under 45%. Hence - Qualified.

Which scenario is true when lender calculates DTI ratio?

Thanks.

 Here is a real lending answer, since he was off work for more than 12 months he will "generally," need min 6 months on the new job and we can only use his salary or base income only. The other variable income such as bonuses, commissions, overtime, etc will need min 12-24 months to use these sources.

So if his Income is projected to be 50,000 + 45,000 in commissions then we'd only use 50,000/ 12 = $4166.67 per month till month 12-24 in which we may consider his variable income sources. In most cases underwriters want to see full 2+ years to use variable sources however I've seen it used in 1 year or longer.

The above scenarios do not matter as long as he can document atleast 2 full years of employment sometime in his past he will be fine.