This Article Is About Home Loan With Declining And Irregular Income Mortgage Guidelines.

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 the applicant if the underwriter does not feel comfortable with the borrower’s recent income history in the past two years.  Speak With Our Loan Officer for Mortgage Loans

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.

Home Loan With Declining And Irregular Income: Income Stability Concerns By Underwriters

One of the major concerns for underwriters when considering a home loan with declining and irregular income is the security of the borrower’s income and employment or business. They will ask questions such as:

• Why has the income drastically dropped?
• Is it a one-time major loss?
• Has the business encountered technology issues?
• Have multiple competitors emerged?
• Will the business income return to its original level?
• What is the gross potential of the business?

These are some of the concerns mortgage underwriters may have.

Borrowers need to write a detailed letter of explanation to the underwriter, including supporting documents, to convince them that their business and income are secure and likely to remain stable for the next three years. Connect With Our expert and get help for clear your loan without declining

Using Part-Time Income As Qualified Income

Certain criteria must be met to qualify for a home loan with declining and irregular income using part-time income. Borrowers must have maintained part-time employment for at least two years. Additionally, there must be a promising likelihood that the part-time job will continue for at least the next three years.

Part-time income needs to have been consistent or increasing over the past two years, including the year to date. A minimal decline in part-time income can still be acceptable. However, underwriters will not consider part-time income that is substantially declining.

Overtime Income And Bonus Income

When applying for a home loan with declining and irregular primary income, borrowers can still leverage overtime and bonus income as supplemental sources. This strategy is effective if there is evidence of a consistent or increasing trend in earning such income over the past two years. It’s crucial to understand that if overtime and bonus income are declining, they will not be factored into the loan application process. Typically, underwriters can only average or count these income sources if there’s a noticeable downward trajectory.

Home Loan With Declining And Irregular Income: Issues With Irregular Income

Mortgage lenders consider regular and consistent income the best predictor of future consistent income. Mortgage underwriters are wary of irregular income because it complicates the prediction of future earnings.

Borrowers with irregular income must provide a detailed letter of explanation, supported by documents, to justify the inconsistencies. They should clarify if the irregular income resulted from injury on the job, personal issues, returning to school, maternity leave, seasonal employment, or a job transfer to a different position.

Determining whether the irregular income is temporary or likely to continue declining is essential. Despite the challenges, a well-prepared letter of explanation can make securing a Home Loan With Declining And Irregular Income feasible.

Bank Statement Loans For Self-Employment Borrowers

Gustan Cho Associates provides a unique home loan option for those with declining and irregular income, specifically targeting self-employed individuals. Using an average of 12 months of bank statement deposits, they calculate the monthly income without needing income tax returns. The amount withdrawn from these accounts does not impact the income calculation.

A 10% to 20% down payment is required to secure the loan. Importantly, for self-employed borrowers seeking a bank statement loan, there are no upper limits on the amount that can be borrowed, and obtaining private mortgage insurance is optional.  Speak With Our Loan Officer for Bank Statement Loan for Self-Employment Borrowers

Steps to Improve Your Chances

1. Prepare Financial Documentation: Remember to gather all essential financial papers, such as tax documents, bank statements, and evidence of any additional income. Make sure everything is well-organized and readily available.
2. Credit Score Improvement: Paying off debts, refraining from new credit inquiries, and rectifying any errors on your credit report can help enhance your credit score.
3. Increase Your Savings: Build up your savings to show financial stability and the ability to handle potential financial challenges.
4. Research and Approach Multiple Lenders: Don’t rely on just one lender. Research various lenders, including those specializing in non-traditional income borrowers, and compare their offerings.
5. Consider Alternative Loan Products: Look into loan products for self-employed or irregular income earners, such as stated income loans or bank statement loans.
6. Professional Advice: Seek advice from financial advisors or mortgage brokers with experience with irregular-income borrowers.

Following these guidelines and preparing thoroughly can improve your chances of securing a home loan despite declining or irregular income.

FAQs: Home Loan With Declining And Irregular Income Mortgage Guidelines

1. Can I qualify for a home loan with declining and irregular income? Yes, you can qualify for a home loan with declining and irregular income, but it largely depends on the mortgage underwriter’s discretion. Proper documentation and a clear explanation of your income fluctuations are crucial.

2. How do mortgage underwriters calculate income for self-employed borrowers? Mortgage underwriters will average the past two years of adjusted gross income by adding them together and dividing by 24 months. Suppose the most recent year’s income is lower than the preceding year. In that case, the underwriter may use the lower adjusted gross income divided by 12 months.

3. What concerns do underwriters have about declining and irregular income? Underwriters worry about the consistency and safety of the borrower’s earnings. They must be assured that their steady income will remain unchanged for three years. Substantial decreases in income cause concern.

4. Can part-time income be used for mortgage qualification? Yes, part-time income can be used if the borrower has had the part-time job for at least two years and the income is consistent or increasing. Declining part-time income can only be used if the decline is minimal.

5. What about overtime and bonus income? If there is a consistent or increasing two-year history, overtime and bonus income can be considered. However, significantly declining overtime or bonus income cannot be included.

6. How should borrowers with irregular income prepare for the mortgage application process? Borrowers with irregular income should provide a detailed letter with supporting documents to explain the reasons for income fluctuations. This could include injury, personal issues, maternity leave, or seasonal employment.

7. What are bank statement loans for self-employed borrowers? Bank statement loans use 12 months of bank statement deposits to average monthly income. No income tax returns are required, and a 10% to 20% down payment is needed. These loans have no maximum loan limit and do not require private mortgage insurance.

8. What steps can borrowers take to improve their chances of securing a home loan? Borrowers can improve their chances by preparing thorough financial documentation, improving their credit score, increasing their savings, researching and approaching multiple lenders, considering alternative loan products, and seeking professional advice from experienced financial advisors or mortgage brokers.

For more information on the contents of this article or other mortgage-related topics, please contact us at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Gustan Cho Associates Mortgage Group is available 7 days a week, evenings, weekends, and holidays. Gustan Cho Associates is a mortgage company licensed in multiple states with no overlays on government and conventional loans. We are also experts on non-QM and bank statement loans for self-employed borrowers.

This blog about Home Loan With Declining And Irregular Income Mortgage Guidelines was updated on May 24th, 2024.