Many Michigan borrowers work in industries such as healthcare, transportation, construction, and consulting, where per diem compensation is common. However, major mortgage programs, including FHA, USDA, and Conventional loans, have strict rules regarding whether this income can be used to qualify.
What Is Per Diem Income?
Per diem income is a reimbursement provided by an employer to cover expenses incurred while performing job duties. These expenses may include:
- Travel expenses
- Lodging accommodations
- Meals
- Work-related supplies
- Transportation and incidental costs
Unlike salary or hourly wages, per diem payments are designed to offset business expenses, not compensate the borrower for labor. Because of this distinction, most per diem income is not treated as qualifying income for mortgage purposes. In many cases, per diem income is also non-taxable because the employer deducts these expenses on their federal tax returns.
FHA Guidelines: Per Diem Income Not Allowed
FHA loans are a popular option for Michigan home buyers due to their flexible credit requirements and low down payment options. However, FHA has clear guidelines regarding per diem income:
- FHA does not allow per diem income to be used for qualifying purposes
- This applies even if the borrower consistently receives per diem payments
- Because per diem is considered expense reimbursement, not wages, it cannot be included in qualifying income calculations
USDA Guidelines: Limited Exceptions Apply
USDA loans, which are available in eligible rural and suburban areas throughout Michigan, have slightly different rules. USDA may allow per diem income only if:
- The per diem income is taxable
- The income is properly documented
- The income is included in the borrower’s annual qualifying income
Since most per diem income is non-taxable, it often cannot be used. However, if the employer classifies the income as taxable wages and reports it accordingly, it may be considered.
Conventional Loan Guidelines: Generally Not Allowed
Conventional loans, backed by Fannie Mae and Freddie Mac, generally follow similar restrictions to those of FHA. Conventional guidelines typically:
- Do not allow per diem income for qualifying purposes
- Require stable, taxable, and verifiable income
- Focus on income that represents consistent compensation rather than reimbursements
Because per diem income is tied to expense reimbursement, it is usually not included in mortgage qualification calculations. This guideline is especially important for Michigan borrowers working in fields such as: Travel nurses, Union workers, Construction professionals, Truck drivers, Consultants, and contract workers. Even though per diem income may significantly increase overall earnings, it may not increase qualifying income for mortgage approval. This means borrowers may qualify based only on their base salary, hourly wages, or taxable income.
If you receive per diem income and are planning to buy a home in Michigan, contact us.
