Where a borrower is a member of the clergy, all of the following will be required to document income: 1) Most recent year full tax return, 2) Most recent pay stubs, 3) W-2s, 4) Contract from the church to determine benefits.
The IRS looks at the housing allowance portion of a pastor’s income as an exclusion from income. Therefore the housing allowance is not reported on the personal tax returns as taxable income. Even though it is not reported on the tax returns, a pastor’s housing allowance can be used in qualifying for a mortgage loan to purchase or refinance a home.
As long as we can document the receipt of the housing income through a signed letter from the church/employer stating the actual breakdown of the pay and by providing copies of the checks received, we should be able to count the housing allowance as income. Some employers will even put the housing allowance on the w2 as a nontaxable amount which makes it even easier.