Yes. Trust income, regular distributions from a trust or estate, can be used to qualify for a conventional loan. Fannie Mae requires documentation that the income has been received for at least 12 months and is expected to continue for a minimum of 3 years. The type of trust, whether distributions are mandatory or discretionary, and the trust's remaining assets all factor into how lenders evaluate it.
Mandatory vs. Discretionary Distributions
Mandatory distributions, those required by the trust terms, are the easiest to qualify with. If the trust document specifies that distributions must be made on a schedule, lenders can treat that income as stable and predictable. Discretionary distributions, where the trustee decides whether and when to distribute, are harder to qualify with because future payments are not guaranteed by the trust terms. Some lenders won't count discretionary distributions at all, while others will if there's a documented history and enough remaining trust assets.
Documentation Requirements
To use trust income for a mortgage, expect to provide: a full copy of the trust agreement, 12 months of bank statements showing the distributions, a letter from the trustee confirming the distributions are expected to continue, and documentation of the trust's remaining assets if asked. If the trust is set to terminate within 3 years, the income generally cannot be used, even if it's currently being received.
When the 3-Year Rule Creates Problems
The 3-year continuance requirement catches a lot of borrowers. If you are 70 years old and the trust terminates when you turn 72, a lender cannot count that income even though you'll receive it for the next two years. The same applies if the trust document shows a termination date within the next 36 months. In those cases, other income sources or asset depletion may be better paths to qualification.
Trust-Owned Properties Add Another Layer
If you want to purchase a property in the name of a trust, rather than just using trust income to qualify, there are additional requirements. Not all loan programs allow trust vesting. FHA, VA, and USDA generally do not allow trust-owned properties. Conventional and jumbo programs often allow it with a trust review, but each lender's requirements differ. Dan reviews both scenarios: using trust income to qualify as an individual, and purchasing property that will be held in a trust.
Trust income files are interesting because the documentation tells you a lot about whether the income is actually stable. I've seen trusts with $5 million in assets paying out $3,000 a month, very stable. I've also seen trusts nearly depleted that technically still show distributions. The trust agreement and asset statement matter as much as the deposit history. If you have trust income, bring me the trust documents and let me read them before we start.
Have a situation like this?
Call Dan at (661) 342-9381. He will review your specific situation in a free call.