Home Loan With Income Increase Mortgage Lending Guidelines

Home Loan with Income Increase: Everything You Need to Know in 2024

Are you thinking about buying a home or refinancing your mortgage? Wondering if a recent income increase can help you qualify for a better loan or higher loan amount? You’re not alone! Many people are curious about how a new job, a promotion, or a salary increase affects their chances of getting approved for a mortgage.

In this guide, we’ll explain everything you need to know about qualifying for a home loan with an income increase in 2024. Whether you’re a first-time homebuyer or looking to refinance, we’ll answer your questions, show you the steps to take, and help you understand the process.

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Can I Get Approved for a Mortgage with a New Income Increase?

Yes! If you’ve had a recent pay raise or job promotion, your chances of getting approved for a home loan can improve. Lenders love seeing a higher income because it shows you have more money to cover your mortgage payments. However, there are some things you need to know about how mortgage lenders look at your income and what documentation they’ll need.

Lenders don’t always rely on your old income when you’ve had a major increase. In many cases, they will use your new, higher income to help you qualify for the loan. This is great news if you hope to buy a bigger home or get better loan terms!

Key Point: Documenting Your Income Is Essential

The one thing lenders require, though, is proof of your new income. That means providing pay stubs, employment verification, or an offer letter if you just started a new job. In 2024, mortgage lenders are stricter about documentation, so having your paperwork in order will speed up your approval process.

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How Does a Job Promotion or Salary Increase Affect My Mortgage?

Suppose you’ve been promoted to a higher-paying job or had a significant raise. In that case, lenders will typically qualify you based on your new salary. This can mean you’ll qualify for a larger loan amount or get better interest rates due to your stronger financial standing.

Here are some common scenarios:

From Part-Time to Full-Time: If you’ve been working part-time and just got bumped up to full-time, lenders will usually qualify you based on your new full-time income. You won’t need to average the lower income from your part-time job.
Significant Pay Increase: If you’ve had a major salary bump, lenders often use the higher income as long as you can prove it with pay stubs or an employment letter.

Will Lenders Average My Income Over Two Years?

A common question is whether lenders will average your income over two years, even if you’ve had a raise. The answer is it depends.

If you’ve had a steady income increase over the past two years, lenders might average it, especially if you’re an hourly worker.
If you’ve had a big raise or job promotion, lenders may use your current income without averaging the past two years, especially if you’ve moved from hourly to salary pay.

In 2024, many lenders will start using your current income, especially when it’s verifiable and shows a clear upward trend.

Key Point: Your New Full-Time Income Is What Counts

If you previously worked part-time or had gaps in your employment, your new full-time salary will be the key factor in qualifying for a mortgage. You’ll need at least 30 days of pay stubs from your new job before your loan can close.

Can I Increase My Mortgage Amount After an Income Increase?

Increasing your mortgage amount after an income boost is possible, especially if your new income improves your debt-to-income ratio (DTI). Here’s how you can do it:

Refinancing: If the value of your home has gone up or you’ve carried out renovations, you can consider refinancing. Refinancing allows you to substitute your existing loan with a new one, and often, you can get additional funds based on your home’s increased value and your augmented income.
Cash-Out Refinance: With a cash-out refinance, you have the opportunity to tap into your home’s equity. You can obtain a new mortgage that exceeds your current balance by providing additional funds through this option. This extra money can be utilized for home improvements, debt repayment, or handling significant expenses.
Home Equity Loan or Line of Credit: If the value of your home has increased, you may be eligible for a home equity loan or a home equity line of credit (HELOC). These choices allow you to borrow against the equity in your home and raise your overall mortgage balance.
Negotiating with Your Lender: Sometimes, if you’ve been a reliable borrower with a good payment history, you can renegotiate your loan terms with your lender. This is more common in 2024, as lenders want to retain good customers and might offer you a higher loan amount or better rates.

Why Is Income So Important When Applying for a Home Loan?

Income is one of the two most important factors lenders look at when deciding if you qualify for a mortgage. The other factor is credit. Even if you have excellent credit, if your income isn’t enough to cover the loan, lenders won’t approve you.

In 2024, lenders are placing more weight on verifiable income. This means income documented through pay stubs, W-2s, or tax returns. If you earn cash income that isn’t documented, it won’t be counted in your loan application.

Key Point: Your Income Determines Your Loan Size

Lenders will consider your income to figure out how much you can afford. Your debt-to-income ratio (DTI) is important here. Most lenders prefer a DTI below 43%, although some may allow a higher DTI, especially with non-QM loans.

How to Qualify for a Home Loan with Income Increase

If your income has gone up recently, here’s how you can qualify for a mortgage:

Provide Proof of Income: You’ll need to show at least 30 days’ pay stubs from your new job or higher-paying role.
Submit Employment Verification: Your employer may need to verify your new income, especially if you’ve just been promoted.
Submit Tax Returns: Lenders will also look at your last two years of tax returns, but they will prioritize your current income if it’s substantially higher than before.
Keep Your Credit in Check: Stay current with your payments and refrain from acquiring additional debt when seeking a mortgage.

Income Increases and High Debt-to-Income Ratios

If you have a high debt-to-income ratio, it may be harder to qualify for a loan. However, options are still available, especially if you’ve had an income increase.

Strategies for High DTI Ratios:

Boost Your Credit Score: A higher credit score can help offset a high DTI. Make sure your bills are paid on time, and reduce your credit card balances if possible.
Lower Your Existing Debt: Paying down debts can improve your DTI ratio and make you more appealing to lenders.
Increase Your Income: This is where your recent raise comes in handy. Showing that you’ve had a substantial income increase can make up for a high DTI.
Consider a Co-Signer: Adding a co-signer with a low DTI and strong credit can improve your approval chances.

In 2024, non-QM loans are also a great option for borrowers with high DTI ratios. These loans are designed for people who don’t fit the standard lending criteria but are still financially stable.

Income Increases and High Debt-to-Income Ratios

If you have a high debt-to-income ratio, it may be harder to qualify for a loan. However, options are still available, especially if you’ve had an income increase.

Strategies for High DTI Ratios:

Boost Your Credit Score: Pay your bills on time and reduce your credit card balances. This can enhance your credit score. This approach can help offset a high debt-to-income ratio.
Lower Your Existing Debt: Paying down debts can improve your DTI ratio and make you more appealing to lenders.
Increase Your Income: This is where your recent raise comes in handy. Showing that you’ve had a substantial income increase can make up for a high DTI.
Consider a Co-Signer: Adding a co-signer with a low DTI and strong credit can improve your approval chances.

How Mortgage Lenders Handle Part-Time to Full-Time Employment

If you’ve recently moved from a part-time to a full-time job, lenders will usually use your new full-time income to qualify you for a loan. This is good news because it means you don’t have to average out your lower part-time earnings.

Here’s what you need to know:

Full-Time Job Offer: If you worked as a temp or part-time worker and got a full-time offer, lenders will typically count your full-time income immediately.
Employment Verification: Make sure your employer can verify your new job status and income. Lenders will want proof, especially if you’ve just started full-time work.
No Income Averaging: For most borrowers who go from part-time to full-time with a higher salary, lenders won’t average your income over two years—they’ll use your new higher income.

What if You’ve Had Multiple Income Increases?

If you’ve had several raises over the last two years, especially if you’re an hourly worker, lenders might average out your income. But suppose you’ve had a significant increase, especially if you’ve moved from hourly to salaried employment. In that case, lenders will likely use your current income without averaging.

In 2024, lenders will be more flexible when using the borrower’s latest income as long as it’s well-documented.

Getting Approved for a Mortgage with a Promotion

Promotions are great for your mortgage application. Whether you’ve been promoted to a new role or received a salary bump, lenders often use your new income to qualify you for a loan. As long as you can document your higher income and it’s stable, lenders are usually happy to use the new figure for loan approval.

Conclusion: Make the Most of Your Income Increase

If you’ve recently had an income increase, now might be the perfect time to explore your mortgage options. Whether buying a new home or refinancing your existing loan, a higher income can open doors to better rates, bigger loans, and more flexibility. Make sure to document your income carefully, keep your credit in good shape, and explore all your options to find the best loan for your needs in 2024.

For more personalized advice on getting a home loan with an income increase, contact our loan officers today at 800-900-8569 or alex@gustancho.com. We’re here to help seven days a week!

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Frequently Asked Questions About Home Loan With Income Increase:

Q: How Does an Income Increase Affect My Chances of Getting a Home Loan?

A: If you’ve recently had a pay raise or job promotion, lenders may qualify you based on your higher income, improving your chances of getting approved for a home loan with income increase.

Q: Will My Previous Income Be Averaged With My New Income When Applying for a Mortgage?

A: Lenders usually focus on your current income, especially if it’s significantly increased. In many cases, they won’t average your old income if you’re applying for a home loan with an income increase.

Q: Can I Qualify for a Bigger Loan with a Salary Increase?

A: Yes, a salary increase can improve your DTI ratio, which allows you to qualify for a larger home loan with income increase.

Q: What Documents Do I Need to Prove My Income Increase to a Lender?

A: When applying for a home loan with an income increase, you’ll need pay stubs, tax returns, and employment verification.

Q: Can I Use My New Income to Qualify if I’ve Been Promoted from Part-Time to Full-Time?

A: Yes, if you’ve moved from part-time to full-time, lenders will typically qualify you based on your full-time wages without averaging your past part-time income.

Q: Can I Refinance My Mortgage After an Income Increase?

A: Yes, you can refinance to take advantage of your higher income, get better terms, or increase your loan amount through options like cash-out refinancing.

Q: Can a Job Promotion Help Me Get a Better Interest Rate on My Mortgage?

A: A job promotion, especially with a significant salary increase, can make you a more attractive borrower to lenders, possibly helping you secure better interest rates on a home loan with income increase.

Q: Will Lenders Still Consider My Credit Score After an Income Increase?

A: While an income increase helps, your credit score is still important. Lenders assess your income and your credit score when approving your home loan with income increase.

Q: Can I Use a Co-Signer to Qualify for a Larger Loan with a High Debt-to-Income Ratio?

A: If your debt-to-income ratio is high, having a co-signer with a lower debt-to-income ratio can increase your chances of getting approved for a larger loan, especially after your income increases.

Q: What if I’ve had Multiple Raises in the Past Two Years?

A: Lenders may average your income if you’ve had several small raises, but if you’ve had a significant increase, they’ll likely use your current income to qualify you for a home loan with an income increase.

This blog about “Home Loan With Income Increase Mortgage Guidelines” was updated on September 30th, 2024.