Qualifying Income

Income Calculations By Mortgage Underwriters

Gustan Cho Associates

Income is the most important aspect for qualifying for a mortgage loan.  You can have prior bad credit and low credit scores and still qualify for a residential mortgage loan if you have income but you cannot qualify for a mortgage loan with perfect credit if you cannot source and document your income.  No doc and stated income mortgage loans do no longer exist after the real estate and mortgage collapse of 2008.  There are strict mortgage lending guidelines with regards to income and the types of income.  Besides the income guidelines from HUD and Fannie Mae,  mortgage underwriters have discretions on income and whether a type of income can be used for qualification purposes.

1099 Income

If you are a 1099 wage earner, mortgage underwriters will require a minimum of two years 1099 income and two years tax returns.  Your 1099 income reflected on your tax returns less your write offs will be used.  If you have had a larger income on the most current year, then the mortgage underwriter will average the two years 1099 income and divide that by 12 months to use as your monthly gross income.  If you earned a lesser amount the most current year than the prior year, then the lower year 1099 income will be used instead of the two year average and that income will be divided by 12 months to yield the monthly gross income you can used for mortgage qualification purposes.  Your year to date 1099 income will most likely be required to see if you are expected to make the same amount as of the prior years.   If your date to date 1099 income is a declining income, then the mortgage underwriter may decide to use the year to date income since it is declining income or depending on how it is declining, may not qualify you altogether due to declining income.  Mortgage underwriters can deny a mortgage loan applicant with steep declining income year after year or may use the most recent income to calculate monthly gross income.

W-2 Income

W-2 income is pretty straight forward.  Most mortgage lenders will use the most recent pay check stub to calculate income for W-2 wage earners.  Mortgage underwriters will require two years tax returns to see whether the mortgage loan applicant has written off any expenses on their tax returns.  If the mortgage loan applicant has written off expenses from their tax returns, those deductions will be deducted off their income and adjusted and reflected on their monthly gross income qualifications.

W-2 Income: Increasing Income Due To Consistent Raises

If you have been on the same job and have been getting consistent income, a mortgage underwriter may use your most recent pay grade to qualify income as long as your most recent raise can be confirmed through a verification of employment and the verification of employment will state that your job and your income is likely to continue for the next three years.  Some mortgage lenders, not too many, will average the past two years W-2 income while others will just use your most recent 30 days pay check stubs as your current income.

W-2 Income: Declining Income

If your income has been declining year to year, mortgage lenders may either average the past two years W-2 income or some mortgage lenders may use the most recent income as your income in qualifying you for a mortgage.  Some mortgage lenders will not qualify you if you have steep declining income year after year.  If a mortgage lender does not qualify you or denies you a loan due to the fact you have declining income, then go to a different mortgage lender because not all mortgage lenders have the same income qualification guidelines.

Gaps In Employment

If you had multiple jobs in the past two years or gaps in employment, here is how it works:

If you had a gap in employment where you were unemployed for six months or less and just got a new job, your income from your new job will be used and 30 days of paycheck stubs will be required prior to closing on your mortgage loan.  If you have been unemployed for six or more months, then you need to have been employed on your new full time job for at least six or more months to have your income from your new job to be used to qualify for your mortgage loan.

Overtime Income, Part-Time Income, And Bonus Income

If you have overtime income, part-time income, and bonus income, you can use those types of income as long as you have had a two year consistent history and a verification of employment will state that overtime income, part-time income, and bonus income will likely to continue for the next three years.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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