This BLOG On Home Loan With Declining And Irregular Income Mortgage Guidelines Was Written By Alex Carlucci of Gustan Cho Associates
There are ways on how mortgage underwriters qualify borrowers who need a home loan with declining and irregular income.
- Although home loan with declining and irregular income can be done, it all depends mainly on the mortgage underwriter underwriting the file
- Many mortgage companies leave the income calculations for mortgage applicant’s seeking a home loan with declining and irregular income up to the mortgage underwriter
- This is often called mortgage underwriter’s discretion
- If borrowers feel they have a great case with proper documentation and the mortgage underwriter denied the file due to declining and irregular income, they can appeal
- The mortgage loan originator can appeal by requesting the mortgage underwriting manager
- Mortgage underwriters need to feel comfortable borrower’s income is stable and is likely to continue at the same wage level for the next three years
- Declining and irregular income often raises red flags
- This is because of the insecurity of the potential earnings of the mortgage loan applicant
- Mortgage underwriters can zero out the income of applicant if he or she does not feel comfortable with the borrower’s recent income history in the past two years
How Mortgage Underwriters Calculate Income
For self-employed borrowers, mortgage underwriters will average the past two years of adjusted gross income.
- They will add the two years adjusted gross income and divide it by 24 months to get the monthly gross income
- This is only if the two years adjusted gross income is similar or the most recent year is higher than the preceding year’s income
- If the most recent year’s income is lower than the preceding year’s gross adjusted income is lower, then the mortgage underwriter will be using the lowermost recent adjusted gross income (12 months )
- They will divide that by 12 and use that figure as the monthly gross income for income in calculating the monthly gross income of borrowers
- However, if the most recent year’s income is substantially lower than the preceding year’s adjusted gross income, a red flag will show up
- The underwriter will go into an alert mode
Income Stability Concerns By Underwriters
- One of the major concerns underwriters will be concerned about is if borrower’s income and employment and/or business is secure
- Why has the income drastically dropped?
- Is it a one-time major loss?
- Has the business encountered technology issues?
- Have multiple competitors been created?
- Will the business income level increase to the original level?
- What is the gross potential of the business?
- These are some concerns mortgage underwriters may have
- Borrowers need to make sure that they write a detailed letter of explanation to an underwriter with supporting documents to convince them that they are secured with their business and income for now as well as the next three years
Using Part Time Income As Qualified Income
Part-time income can be used for mortgage income qualification:
- However, there is a two-year seasoning requirement
- Borrowers need to have had part-time employment for at least two years to be able to use it as qualified income
- Likelihood of the part-time job to continue for the next three years needs to be promising
- Part-time income needs to be consistent for the past two years as well as year to date or increasing
- Declining part-time income cannot be used
- If part-time income is slightly declining, it is okay
- However, underwriters will not count substantial declining part-time income
Overtime Income And Bonus Income
Overtime and bonus income can be used as additional income:
- This holds true as long borrowers have a two-year history
- Overtime income, bonus income, and overtime income needs to be consistent and/or increasing in the past two years
- Declining overtime income and declining bonus income cannot be used
- Most underwriters will not average or count significant declining overtime income and/or bonus income
Issues With Irregular Income
Regular and consistent income is the best predictor for future consistent income under the eyes of any mortgage lender.
- Mortgage underwriters frown irregular income
- This is because it is hard to predict the probability of future income
- Borrowers with irregular income need to explain via a letter of explanation with supporting documents why they have had irregular income
- Were they injured on the job?
- Did they take time off from their job due to personal issues or going to school?
- Was it maternity leave?
- Is their employment seasonal?
- Did they request job transfer to a different position?
- Is the irregular income temporary or will it continue to decline?
There are so many reasons why borrowers may have irregular income but with a good letter of explanation, everything is doable.
Bank Statement Loans For Self-Employment Borrowers
Gustan Cho Associates at Loan Cabin Inc. offers bank statement loans for self-employed borrowers.
- 12 months of bank statement deposits are averaged
- The monthly average is used as the borrower’s monthly income
- There are no income tax returns required
- Withdrawals do not matter
- 10% to 20% down payment is required
- There are no maximum loan limit caps on bank statement loans for self-employed borrowers
- There is no private mortgage insurance required
For more information on the contents of this article or other mortgage-related topics, please contact us at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org. Gustan Cho Associates Mortgage Group are available 7 days a week, evenings, weekends, and holidays. We are direct lenders with no overlays on government and conventional loans. We are also experts on non-QM and bank statement loans for self-employed borrowers.