"Per Diem" truck driver pay and qualifying for a mortgage.

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"Per Diem" truck driver pay and qualifying for a mortgage.

Michael Hallahan
Las Vegas Nevada · Member since 2016 · 17 posts · 3 votes

Im an over the road truck driver, and my company offers a "per diem" pay package. In this pay plan, a significant amount of my pay is paid as non taxed income. In the images below, ive included the documents they provided that shows how it works. They say that they can provide a letter to a lender that explains that my income is really higher than what will be shown on my w-2. My question is will lenders actually accept this while applying for an FHA or a conventional mortage? Is this scheme that my employer pulling even legal? Also I just began truck driving 6 months ago. Prior to that i worked as a server at a restaurant. Is there a certain amount of time i will need to have worked as a truck driver (2 years?) to qualify for an fha or conventional mortgage?

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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
6y
Originally posted by @Michael Hallahan:

@Chris Mason So you are saying it's a 90% chance they wont accept it?

 No, I'm saying that I'm only 90% sure I know the answer to your question. Which means, IRL if you are my client, I'm collecting your docs and sending them off to underwriting, and not telling you which way I'm 90% sure until I have that answer back.

https://en.wikipedia.org/wiki/Type_I_and_type_II_errors

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  • Account Closed
    Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
    6y
    Originally posted by @Michael Hallahan:

    Im an over the road truck driver, and my company offers a "per diem" pay package. In this pay plan, a significant amount of my pay is paid as non taxed income. In the images below, ive included the documents they provided that shows how it works. They say that they can provide a letter to a lender that explains that my income is really higher than what will be shown on my w-2. My question is will lenders actually accept this while applying for an FHA or a conventional mortage? Is this scheme that my employer pulling even legal? Also I just began truck driving 6 months ago. Prior to that i worked as a server at a restaurant. Is there a certain amount of time i will need to have worked as a truck driver (2 years?) to qualify for an fha or conventional mortgage?

    FHA likes to see two years in the same industry or the same job. FHA will accept some pretty odd things (and it changes all of the time) so you'd have to talk to a mortgage broker for specifics. But generally, they want two years on the job, two years bank statements, two years of tax returns and a FICO score in at least the low 600's. If you are an employee they will take a letter from your employer, if you are 1099 they will want a Profit and Loss statement.

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  • John Teachout
    Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
    6y

    Per Diem is not considered income because it's an amount intended to cover meals, lodging and incidental expenses incurred by being away from home. Most don't spend it all so it goes in their pocket but it's not likely a lender will consider it to be an income source. If you keep good records of your expenses, you may be able to make an argument but most lenders have boxes to check and that probably won't fit into one of them.

    0Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    6y

    The income will be taxed - just not as w2 income. But you will be taxed as a self employed person is my guess?  (Edit- i misread the document see below) 

    I would call two people - a mortgage broker so you can fact find, and a tax person - so you can understand and prepare for any addtl taxes you might owe. 

    I am editing my comment to say - you need to find out if reporting LESS INCOME is what you really want to be doing. It will make it harder to get a loan, and you will accumulate less social security - this matters! 

    0Reply
  • Michael Hallahan
    OP
    Las Vegas Nevada · Member since 2016 · 17 posts · 3 votes
    6y

    Well i was hoping a seasoned mortgage professional would weigh in, from my research online ive found the answer that a lender *may* decide to account for the per diem income, but I cant find a definite answer on what lenders do and for what programs. I'll get in contact with a lender and see what they say. I was hoping atleast someone could offer a recommendation of who to contact that works with this thing. Also the two years of working in the same position/industry seems ambiguous, im reading conflicting things on that when it comes to the FHA program.

    So if any MORTGAGE PROFESSIONALS could weigh in, that'd be appreciated :). I've heard enough from, as we say in trucking, "truckstop lawyers" or in this case...  keyboard warriors? No that's too derogatory, sorry 🤣🤣.  I appreciate ya'lls help but im waiting for an acutally LO/Underwriter to weigh in here.

    0Reply
  • Account Closed
    Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
    6y
    Originally posted by @Michael Hallahan:

    Well i was hoping a seasoned mortgage professional would weigh in, from my research online ive found the answer that a lender *may* decide to account for the per diem income, but I cant find a definite answer on what lenders do and for what programs. I'll get in contact with a lender and see what they say. I was hoping atleast someone could offer a recommendation of who to contact that works with this thing. Also the two years of working in the same position/industry seems ambiguous, im reading conflicting things on that when it comes to the FHA program.

    So if any MORTGAGE PROFESSIONALS could weigh in, that'd be appreciated :). I've heard enough from, as we say in trucking, "truckstop lawyers" or in this case...  keyboard warriors? No that's too derogatory, sorry 🤣🤣.  I appreciate ya'lls help but im waiting for an acutally LO/Underwriter to weigh in here.

    I was a loan officer before I started investing full time. Your answer is that you need to present all of your documents to find out. Since you have been at the job for six months you have little likelihood of getting an FHA loan until you have been at the job two years. So, It is a moot point (non issue until you hit two years). Asked & Answered. End of story. Sorry, but FHA has rules.

    With what you present as weekly income of $1,200 times 52 weeks is $62,400 divided by 12 months is $5200 monthly and you would qualify for about $1,820 per month for principal, interest, insurance and taxes and PMI for FHA and would be about $280,000 home with 3.5% down or about $9,800 down, at 4% interest on a 30 year fixed.

    You should look into Hard Money or better yet Private Money instead.

    1Reply
  • Michael Hallahan
    OP
    Las Vegas Nevada · Member since 2016 · 17 posts · 3 votes
    6y
    Originally posted by @Account Closed:
    Originally posted by @Michael Hallahan:

    Well i was hoping a seasoned mortgage professional would weigh in, from my research online ive found the answer that a lender *may* decide to account for the per diem income, but I cant find a definite answer on what lenders do and for what programs. I'll get in contact with a lender and see what they say. I was hoping atleast someone could offer a recommendation of who to contact that works with this thing. Also the two years of working in the same position/industry seems ambiguous, im reading conflicting things on that when it comes to the FHA program.

    So if any MORTGAGE PROFESSIONALS could weigh in, that'd be appreciated :). I've heard enough from, as we say in trucking, "truckstop lawyers" or in this case...  keyboard warriors? No that's too derogatory, sorry 🤣🤣.  I appreciate ya'lls help but im waiting for an acutally LO/Underwriter to weigh in here.

    I was a loan officer before I started investing full time. Your answer is that you need to present all of your documents to find out. Since you have been at the job for six months you have little likelihood of getting an FHA loan until you have been at the job two years. It is a moot point. Sorry, but FHA has rules. You should look into Hard Money or better yet Private Money instead.

    I appreciate your help. How long ago was it that you were a LO? The FHA program changes. Ive read conflicting/ambiguous things on this topic.

    0Reply
  • Account Closed
    Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
    6y
    Originally posted by @Michael Hallahan:
    Originally posted by @Account Closed:
    Originally posted by @Michael Hallahan:

    Well i was hoping a seasoned mortgage professional would weigh in, from my research online ive found the answer that a lender *may* decide to account for the per diem income, but I cant find a definite answer on what lenders do and for what programs. I'll get in contact with a lender and see what they say. I was hoping atleast someone could offer a recommendation of who to contact that works with this thing. Also the two years of working in the same position/industry seems ambiguous, im reading conflicting things on that when it comes to the FHA program.

    So if any MORTGAGE PROFESSIONALS could weigh in, that'd be appreciated :). I've heard enough from, as we say in trucking, "truckstop lawyers" or in this case...  keyboard warriors? No that's too derogatory, sorry 🤣🤣.  I appreciate ya'lls help but im waiting for an acutally LO/Underwriter to weigh in here.

    I was a loan officer before I started investing full time. Your answer is that you need to present all of your documents to find out. Since you have been at the job for six months you have little likelihood of getting an FHA loan until you have been at the job two years. It is a moot point. Sorry, but FHA has rules. You should look into Hard Money or better yet Private Money instead.

    I appreciate your help. How long ago was it that you were a LO? The FHA program changes. Ive read conflicting/ambiguous things on this topic.

    I was a loan officer before I started investing full time. Your answer is that you need to present all of your documents to find out. Since you have been at the job for six months you have little likelihood of getting an FHA loan until you have been at the job two years. So, It is a moot point (non issue until you hit two years). Asked & Answered. End of story. Sorry, but FHA has rules.

    With what you present as weekly income of $1,200 times 52 weeks is $62,400 divided by 12 months is $5200 monthly and you would qualify for about $1,820 per month for principal, interest, insurance and taxes and PMI for FHA and would be about $280,000 home with 3.5% down or about $9,800 down, at 4% interest on a 30 year fixed.

    You should look into Hard Money or better yet Private Money instead.

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    6y

    I've found that the most efficient use of time for wonky scenarios like this is to collect all income docs and shoot it over to an underwriter or two.

    I believe I know the answer, I'd say I'm about 90% certain (not a lot of truck drivers are in the market to become homeowners in the SF Bay Area, so I'm thinking of other professions w/ per diem for my mental examples). However, if I say "no" when the answer should be "yes," then you don't become a homeowner when you otherwise could. If I say "yes" when the answer should be "no," then you might lose an earnest money deposit.

    A few of the banks I work with (you need to find someone in NC, I'm in CA) will review income docs as a "address to be determined" scenario, and the decision (both the yes/no, and the income per month calc) is binding on that underwriter, they can't go back in once the file is "live" and re-calculate and come to a different conclusion unless the updated income docs are also different. That's what you want here, not my or anyone else's 90%.

    If you get lucky someone will pop in who is the "truck driver's mortgage guy" in their market (like how I'm the "landlord's mortgage guy" in the East Bay, how someone is the "stated income HELOC gal" in every market, you get the idea), that person could answer with >90% certainty (& by all means give that gal or guy a call if licensed in your market), but if not then I'd suggest the above.

    0Reply
  • Michael Hallahan
    OP
    Las Vegas Nevada · Member since 2016 · 17 posts · 3 votes
    6y

    @Chris Mason So you are saying it's a 90% chance they wont accept it?

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    6y
    Originally posted by @Michael Hallahan:

    @Chris Mason So you are saying it's a 90% chance they wont accept it?

     No, I'm saying that I'm only 90% sure I know the answer to your question. Which means, IRL if you are my client, I'm collecting your docs and sending them off to underwriting, and not telling you which way I'm 90% sure until I have that answer back.

    https://en.wikipedia.org/wiki/Type_I_and_type_II_errors

    1Reply
  • Anthony Cummings
    Member since 2020 · 2 posts · 0 votes
    6y

    I’m 100% certain of the following information that I want to share with you. As a truck driver the IRS allows your company to not tax $66 per day as long as you are away from your home 12 or more hours per day. So if you are a long-haul driver, every day qualifies for $66 per day nontaxable including the day you left home as long as you leave home prior to noon.

    That said, any income that you receive which is not taxable will not be used to help you qualify for a mortgage. $462 per week is the absolute maximum that can avoid taxes.

    You are absolutely spot on with your suspicion about whether or not this income can be used to qualify for a mortgage. The answer is no, plain and simple. You do need two years average income as a truck driver and the purpose of that is so they can take your average. I’m a truck driver who was a former mortgage banker and those are the rules to change every now and then, the basics never do.

    I earn approximately $92,000 per year and if I allow my maximum per diem allowance to be utilized my taxable wages will be reduced down to approximately $72,000 per year. That’s a lot of reduced buying power! 

    Employers pray that all drivers will take advantage of this tax loophole for one reason and one reason only. You are saving them money! everything that you don’t need to pay taxes on is the same for your employer, namely the 7.65% contribution towards your Social Security. That’s approximately a $1530 savings for your employer per employee assuming you are earning an identical income to my own. This will also affect your Social Security benefits as you reach retirement age.

    Bottom line, this little gimmick will only put between $80-$90 per week extra into your paycheck but the consequences can be devastating long-term. 

    When it’s time for you to purchase a home please sit down with a licensed mortgage professional and discuss VHDA loans which is designed for first time homebuyers. Not only could you get the best interest rates possible but there are programs out there to help you save additional money on your monthly mortgage payment. Choose your home wisely and stay there as long as possible. Don’t fall victim to refinancing every few years, just get the darn thing paid off!


    You sound like you’re a smart young man, I wish you the best of luck.

    0Reply
  • Michael Hallahan
    OP
    Las Vegas Nevada · Member since 2016 · 17 posts · 3 votes
    6y

    @Anthony Cummings

    Thank you. Ya i spoke with a mortgage person a couple months ago, they told me the same thing. I stopped taking per diem and now i actually have a local job so per diem is not an option.

    Ive only been driving since may of last year so i need another year of income history as a driver befor i can buy. Since i started in may 2019 i should be able to qualify in may 2021 correct? Or is based on tax returns so i wouldnt be able to qualify until after i file my 2021 taxes? Also i

    switched companies a month ago will that affect my ability to qualify?

    0Reply
  • Anthony Cummings
    Member since 2020 · 2 posts · 0 votes
    6y

    That won't necessarily disqualify you to purchase a home, FHA and VHDA are very forgiving so to speak. The only time you would have to not wait for the two-year mark is if you were on a salaried position and your employer would write a letter stating that your continued employment was favorable. But that only works if you are on a salaried position.

    You do not have to wait to file taxes to qualify for a mortgage once you have two years. You will provide tax returns for three years prior regardless, plus your most recent paystub’s. They will be able to see that you have reached two years so they can average out your income.

    I do recommend that you stop hopping around. Long-term employment with one company is most favorable if say for example, your credit is borderline or maybe your debt to income ratio is slightly higher than what they would prefer. In the old days we would call long-term employment or a fat savings account a “compensating factor“. Such a thing rarely exists today but it’s not out of the question.

    Stay away from debt, Pay what you have on time and get the biggest payments completely out-of-the-way. A car payment would be a good example. And whatever you do, do not take on any new debt or large car payments before you get your home. Your home should be your prized possession, not some $1000 a month pick up truck!

    0Reply
  • David Cameron
    Member since 2022 · 1 post · 0 votes
    4y
    Quote from @Anthony Cummings:

    I’m 100% certain of the following information that I want to share with you. As a truck driver the IRS allows your company to not tax $66 per day as long as you are away from your home 12 or more hours per day. So if you are a long-haul driver, every day qualifies for $66 per day nontaxable including the day you left home as long as you leave home prior to noon.

    That said, any income that you receive which is not taxable will not be used to help you qualify for a mortgage. $462 per week is the absolute maximum that can avoid taxes.

    You are absolutely spot on with your suspicion about whether or not this income can be used to qualify for a mortgage. The answer is no, plain and simple. You do need two years average income as a truck driver and the purpose of that is so they can take your average. I’m a truck driver who was a former mortgage banker and those are the rules to change every now and then, the basics never do.

    I earn approximately $92,000 per year and if I allow my maximum per diem allowance to be utilized my taxable wages will be reduced down to approximately $72,000 per year. That’s a lot of reduced buying power! 

    Employers pray that all drivers will take advantage of this tax loophole for one reason and one reason only. You are saving them money! everything that you don’t need to pay taxes on is the same for your employer, namely the 7.65% contribution towards your Social Security. That’s approximately a $1530 savings for your employer per employee assuming you are earning an identical income to my own. This will also affect your Social Security benefits as you reach retirement age.

    Bottom line, this little gimmick will only put between $80-$90 per week extra into your paycheck but the consequences can be devastating long-term. 

    When it’s time for you to purchase a home please sit down with a licensed mortgage professional and discuss VHDA loans which is designed for first time homebuyers. Not only could you get the best interest rates possible but there are programs out there to help you save additional money on your monthly mortgage payment. Choose your home wisely and stay there as long as possible. Don’t fall victim to refinancing every few years, just get the darn thing paid off!


    You sound like you’re a smart young man, I wish you the best of luck.

    I want to know where it says that Per diem can not be used as income? Show me the money. What's the regulation? If its not to be used then there is a regulation, a rule at the federal level some where that says, "PER DIEM, GIFTS, GRANTS, ECT... OR ANY UNTAXABLE OR UNTANGABLE COINS, FORAN CURENCY, SHELLS, ROCKS, or PRECIOUS METALS SHALL NOT BE CONSIDERED INCOME WHEN APPLYING FOR FHA, VA LOAN PROGRAM." or something to that Nature. I call Bull Hocky.
    When applying for WELL FARE, they want to know if you sold a cigarette and made a profit. And it's specified in the regulation of the program. 

    So Show ME!!!
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