How Do Underwriters Calculate Monthly Income Of Borrowers

This BLOG On How Do Underwriters Calculate Monthly Income Of Borrowers Was UPDATED On January 7th, 2018

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. Days of stated income home loans have long passed
  • NON-QM Loans and Bank Statement Mortgage Loans for self employed borrowers are back
  • The Gustan Cho Team at USA Mortgage is a direct lender 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 residential mortgage lenders

Monthly income will be the most important determinant along with your credit scores that will determine how much of a home you can afford.

  • 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 mortgage approval process needs to be verified and cash income cannot be used for monthly income qualification purposes

How Do Underwriters Calculate Monthly Income Of Borrowers: Hourly And Salaried Monthly Income

If a mortgage loan 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:
    • Bonus
    • Overtime
    • Part time
    • 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 seasoning.

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 and 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
  • Overtime income, part time income, bonus income, or commission income will have the likelihood of continuing for the next three years

Overtime And Other Income

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 or 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 a mortgage loan borrower is self employed or a 1099 wage earner, two years tax returns and income as a 1099 is mandatory.

  • Mortgage 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 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

The Gustan Cho Team at USA Mortgage offers the W-2 Only Income Mortgage Loan Program . The Gustan Cho Team at USA Mortgage 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 USA Mortgage. Home Buyers who need to qualify for home loans with a direct lender with no mortgage overlays on government and conventional loans, please contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. We are available 7 days a week, evenings, weekends, and holidays.

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.

Comments are closed.