This BLOG On How Do Underwriters Calculate Monthly Income Of Borrowers Was UPDATED And PUBLISHED On October 18th, 2020
The way on How Do Underwriters Calculate Monthly Income Of Borrowers is with documented qualified income.
- There are strict mortgage regulations on How Do Underwriters Calculate Monthly Income Of Borrowers on government and conventional loans
- Days of stated income home loans have long passed
- However, non-QM loans are alternative nonconforming loan programs that is becoming very popular
- Only qualified income will count to be used when calculating debt to income ratios
- Undocumented cash income cannot be counted
- Only adjusted gross income after unreimbursed business expenses can be used
- Due to only adjusted gross income being used as qualified income, business owners and self-employed borrowers often had trouble qualifying for a mortgage
- NON-QM Loans and Bank Statement Mortgage Loans for self-employed borrowers are back
- Gustan Cho Associates is a national mortgage company licensed in multiple states with no overlays on government and conventional loans
- However, the ways on How Do Underwriters Calculate Monthly Income Of Borrowers is pretty much the same for all lenders underwriting FHA, VA, USDA, and Conventional loans
In this article, we will cover and discuss how do underwriters calculate income.
How Do Underwriters Calculate Monthly Income: The Importance Of Qualified Income
- It is not how much you make a month but how much monthly income can be verified by the mortgage underwriter
- All monthly income in the mortgage approval process needs to be verified
- Cash income cannot be used for monthly income qualification purposes
- Declining income is a bad sign for underwriters and may not be eligible as qualified income
- Mortgage underwriters need to determine and use their discretion that the income used as qualified income is likely to continue for the next three years
Other income such as part-time income, bonus income, overtime income can be used as qualified income as long as the borrowers had a two-year history and the income is likely to continue.
Hourly And Salaried Monthly Income
If a borrower is an hourly full-time employee the way mortgage underwriters calculate it as follows:
- Take the amount of the hourly rate and multiply it by 40 hours
- Then multiply that figure by 52 weeks
- Then divide it by 12 months to get the monthly gross income
- Do not count overtime income or bonuses
- Overtime income and bonus income are a totally different subject matter
There are other ways of calculating the following:
- Other income in monthly income qualifications
In order to be able to use a second full-time job, bonus income, overtime income, part-time income, or other income, the borrower needs two years of seasoning. The other income cannot be declining. The mortgage underwriter needs to make a call and has the discretion on whether or not the income is likely to continue for the next three years. Lenders need to make sure the borrowers will remain employed and pay their new home mortgage payment without any stress or financial difficulty.
Salary Wage Earners
In the event if you are employee who is on salary, this is the way you calculate your monthly income for mortgage calculation.
- If the mortgage loan borrower gets their wages twice in a month, then the paycheck is multiplied by 2 since and that will yield the monthly income
If the salaried employee is paid every two weeks, then the paycheck needs to be multiplied by 26 weeks and then divided by 12 months to yield the monthly gross income to qualify for the mortgage loan.
Overtime, Bonus, Part Time, And Commission Income
Other income such as overtime income, bonus income, part time income, and commission income are more complicated to qualify. The mortgage loan originator needs to make sure he or she qualifies it the same way the mortgage underwriter will.
- Mortgage underwriters will not count overtime income or other income unless borrowers have a two-year history
- The other income cannot be declining or inconsistent
Overtime income, part-time income, bonus income, or commission income will have the likelihood of continuing for the next three years.
How Do Underwriters Calculate Monthly Income On Overtime And Other Income Guidelines
Nobody can guarantee that borrowers overtime and other income will continue.
What the mortgage underwriter is going to request is a verification of employment from Human Resources. On the VOE, it will request to Human Resources representative to state the overtime. It will also ask if other income is likely to continue and the likelihood it will continue for next three year is very likely:
- In the event if the HR spokesperson is not willing to state that verbiage, overtime and other income cannot be used as additional income in the monthly income qualification
- In the event if the overtime income is allowed, then the way it is calculated is to take the sum of the two years of overtime income and divide it by 24 months
In the event if the overtime or other income is last in the most recent year than the previous year, then the most current year overtime income or other income is only used and it is divided by 12 months to determine the monthly income.
How To Calculate Monthly Income For Self Employed Mortgage Borrowers
If the borrower is self-employed or a 1099 wage earner, two years of tax returns and income as 1099 is mandatory.
- Lenders will take the adjusted income after all deductions that filers report to the Internal Revenue Service
- Lenders will go off the Schedule C of the tax returns from the previous two years
- Lenders ill take borrowers adjusted annual income to qualify income
- The sum of the two years income from borrowers tax returns are added and divided by 24 months to determine the monthly income
- If the income from the most recent tax returns are lower than the reported income from the previous year, then the income of the most current year tax returns divided by 12 months will be used
Borrowers wrote off depreciation can add depreciation back to the tax returns and can add it to income.
W-2 Only Income Mortgage Loan Program
Gustan Cho Associates offers the W-2 Only Income Mortgage Loan Program .
- Gustan Cho Associates does not require income tax returns by borrowers if the Automated Underwriting System (AUS) Findings do not require it
- W-2 Only Income Mortgages is very popular for W-2 Only Borrowers at Gustan Cho Associates
Home Buyers who need to qualify for home loans with a direct lender with no overlays on government and conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at email@example.com. The team at Gustan Cho Associates are available 7 days a week, evenings, weekends, and holidays.