How Do Mortgage Underwriters View Declining And Irregular Income?


Declining And Irregular Income

There are case scenarios where a worker works 40 hours per week as well as overtime for an employer but the employer pays the employee part check and part cash.  Only a percentage of the employee’s income is W-2 income and the balance is paid in cash.  Enough though the employee is a full time employee, under the mortgage underwriter’s eyes and mortgage lending guidelines, the person is classified as a part time employee if the W-2 payroll check is 30 hours or less.  Only the income that is declared can be used to qualify for his income calculation on his mortgage application.  Cash income is non-existent in the mortgage industry.  Being paid by a company check and that company check being deposited into the mortgage loan applicant’s bank account cannot be used as income for income qualification.

Declining And Irregular Income In Mortgage Income Qualification

approvalThe case scenario in the above paragragh happens many times, especially with small businesses.  Small businesses sometimes pay their employees part W-2 income and part cash so they can save on payroll taxes.  Is it illegal?  Maybe, but it would take too much manpower from the IRS to crack this business practice down since many businesses are still doing it.  In a way it is good for the worker too since they only pay taxes on part of their actual income, however, it ends up hurting the worker when he or she applies for a mortgage loan and needs the full income in order to qualify for a mortgage loan.  Declining and irregular income is viewed differently by each mortgage lender.  One mortgage underwriter will view a particular case of declining and irregular income differently than another mortgage underwriter.  There was one case where I had a mortgage loan borrower get denied by one mortgage loan underwriter because his W-2 income kept on declining year after year.  He was working the same hours for the same company and in reality, he was making more and more money every quarter over the past 2 years but the company was paying over half of his income with a personal check and not deducting his payroll taxes.  I took the file to a different correspondent mortgage lender and went over the case scenario with a mortgage loan underwriter.  The mortgage loan underwriter needed a letter of explanation from the borrower as well as a verification of employment.  How the mortgage loan underwriter viewed this borrower’s declining and irregular income was to average the past six month of his W-2 income, since it has been declining from the previous two years, and get a verification of employment from the employer stating that the worker;s employment is likely to continue for the next three years.  Luckily, we ended getting a mortgage loan approval with declining and irregular income and closing on the loan.

Other Cases Of Declining And Irregular Income

Mortgage lenders require two years of tax returns and W-2s for a reason.  They want to see that the mortgage loan borrower will have a stable job and consistent income so they can afford to pay their monthly mortgage payments once the mortgage loan funds.  Past performance is a good indicator of future prediction on the income and job stability.  There are cases where a mortgage loan applicant has had declining and irregular income.  For example, a person could have had a baby and taken some time off and then went back to work full time.  However, due to the loss of a nanny and/or babysitter, the worker could have taken several months off and then had her mom or in law move in with them to care for their child.  She then goes back full time and makes her normal wage.  What happens on this case scenario?  On this case scenario, the mortgage loan underwriter will go by her full time income and require at least 30 days pay check stubs and a written verification of employment from the employer.  The declining and irregular income is totally understandable and a good written letter of explanation will explain why the mortgage loan borrower had declining and irregular income.

Declining and irregular income is reviewed on a case by case basis and just because one mortgage loan underwriter feels that the mortgage application is too risky to approve the mortgage loan does not mean another mortgage underwriter will view it the same way.  If one mortgage underwriter denies the loan due to declining and irregular income, the mortgage application needs to go to a different mortgage lender in order for another mortgage loan underwriter to underwrite the mortgage loan application.

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