Home Loan With Overtime Income And Other Income

This BLOG On Qualifying For Home Loan With Overtime Income And Other Income Was UPDATED And PUBLISHED On December 18th, 2019

Home Loan With Overtime Income
Gustan Cho Associates

Qualifying For Home Loan With Overtime Income:

Credit Scores and Income are the top two qualification requirements for any home loans.

  • Borrowers with higher debt to income ratios may need other income such as overtime income to qualify for a home loan
  • FHA allows borrowers to have a maximum debt to income ratio of up to 56.9% DTI as long as they have credit scores over 620
  • Borrowers with under 620 credit scores get their debt to income ratio capped at 43% in order to get an approve/eligible per Automated Underwriting System
  • Borrowers who have high debt to income ratios and need to purchase higher-priced homes may need more income and/or pay outstanding debts
  • This is so they can qualify and meet the debt to income ratio on the loan program they are applying

Debt To Income Ratio Requirements On Mortgage Loan Programs

Here is the debt to income ratio requirements on loan programs:

  • FHA Loans: For borrowers with 620 or higher credit scores, maximum front end debt to income ratio is capped at 46.9% DTI and 56.9% DTI back end
  • Borrowers with under 620 credit scores, the maximum debt to income ratio required to get an approve/eligible per AUS is 43%
  • Conventional Loans are capped at 50% debt to income ratio 
  • VA Loans does not have a debt to income ratio requirements
  • However, to get an approve/eligible per Automated Underwriting System Approval, the veteran borrower should not surpass 60% debt to income ratios

What Are Lender Overlays?

What Are Lender Overlays?

Most Lenders have overlays on debt to income ratios where they cap FHA DTI to 45% to 50% DTI even though HUD, the parent of FHA. allows up to 56.9% DTI.

  • Overlays are mortgage guidelines that are above and beyond those of FHA, VA, USDA, Fannie Mae, and Freddie Mac
  • Gustan Cho Associates does not have any lender overlays on government and/or conventional loans
  • We just go off AUS FINDINGS and have zero lender overlays

Over 75% of our borrowers are borrowers who got turned down by other lenders due to lender overlays.

Using Overtime Income As Qualified Income For Mortgage

For those borrowers who work overtime regularly, they can qualify for a home loan with overtime income and can use overtime for extra income when applying for a mortgage loan if they had a history of working overtime for the past two years and the overtime is likely to continue.

  • Part-Time and Bonus Income can also be used if they had bonus income for the past two years as well and it is likely to continue
  • Qualifying for a home loan with overtime income can be tricky because the mortgage underwriter needs to be convinced that the overtime income is stable and will likely continue for the next three years
  • Also, when qualifying for a home loan with overtime income, the overtime income cannot be in a decreasing trend from one year to another

It needs to be the same or greater in the most current year.

How Can You Qualify For Home Loan With Overtime Income

How to qualify for a home loan with overtime

To provide proof and verification that the mortgage loan borrower has been receiving overtime and bonus income for the past two years is not hard to prove.

  • The borrower needs to provide tax returns, W-2’s, payroll records, or have the lender request a verification of employment, also known as a VOE, from the employer 
  • One or more of the documents I just mentioned will be ample proof borrower has been receiving regular overtime income or bonus income the previous two years

Overtime Income Needs To Continue To Qualify For Home Loan With Overtime Income

Nobody can guarantee that overtime income and bonus income will continue. Proving that overtime income and bonus income will continue can be challenging.

However, many mortgage lenders require this and the only way that lenders will accept overtime income is with the following conditions:

  • Need a two-year history of consistent overtime income
  • Need HR to complete Verification Of Employment (VOE)
  • VOE needs to state that overtime is likely to continue for the next three years
  • Many employers are reluctant to write such letter that overtime is likely to continue for the next three years unless it is a mom and pop shop
  • If overtime and/or bonus income has been declining year after year, lenders can decide not to use overtime and/or bonus income

Many professions such as fields in law enforcement, public safety, firefighters, nurses, physicians, and restaurant workers have overtime income consistently.

How Do Mortgage Underwriters Calculate Home Loan With Overtime Income

How Mortgage Underwriters Calculate Home Loans Overtime Income

Overtime income is calculated as follows:

  • If the overtime income is greater the current year than the previous year, the overtime income will be averaged
  • If the overtime income is less the current year than the prior year, then the overtime income of the current lower income will be used and not averaged

Other income such as the following can be used:

  • Bonus Income
  • Part-Time Income
  • Royalty Income
  • Child Support Income
  • Alimony Income
  • Second Full-Time Job

How To Use Part-Time Or Other Income For DTI Calculations

In order for other income to be used in mortgage qualification, the following needs to apply:

  • Two-year history of having such income
  • Likelihood of three years continuation of such income
  • Example, child support income can be used, however, if the children are 16 or 17 years old and child support payments stop at the age of 18, the child support income cannot be used to qualify because it will not continue for the next three years
  • Part-Time Income or borrowers with two full-time jobs need two years seasoning requirement on both jobs to qualify income

Borrowers who need to qualify for a home loan with a direct lender with no overlays, please contact Gustan Cho Associates at 262-716-8151 or text for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays. Gustan Cho Associates is a national five-star lender with no overlays on government and conventional loans. We also offer non-qm loans and bank statement loans for self-employed borrowers.

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