And here is a PDF explaining it for both Fannie Mae and Freddie Mac: https://www.radian.com/-/media/Files/Enterprise/Training/QRG...
Understanding Foreign Income
Foreign income is defined as income earned by a borrower who is employed by a foreign corporation or a foreign government and is paid in foreign currency. The GSEs, Fannie Mae and Freddie Mac, both allow the use of foreign income under certain circumstances.
In the personal tax returns provided by a borrower, you may see an IRS Form 2555, which identifies the foreign earned income. Many borrowers file this form as an exclusion to their US federal taxes as they may have been taxed by the country where they are earning the income.
Required Documentation for Foreign Income
When it comes to processing foreign income for a loan, documents required may include:
» Most recent personal tax returns
» History of receipt
» Proof of continuance of foreign income earnings
» Conversion of the income from the foreign currency to US dollars
These documents must be translated or completed in English so that a loan reviewer can properly evaluate the information provided.
Fannie Mae & Freddie Mac Guidelines
Income from Foreign Source
Income from foreign sources must be reported on the borrower’s most recent U.S. individual federal income tax returns. Specifics can vary depending on the GSE:
» For a Freddie Mac loan file: A copy of the borrower’s most recent, signed US individual federal income tax return is required.
» For a Fannie Mae loan file: A copy of the borrower's most recent two years, signed US individual federal income is required.
Additionally, proof of continuance and conversion calculation to US dollars are necessary
