Ways Mortgage Underwriters View Income

Income Qualification

Gustan Cho Associates

Just because you are employed and are a wage earner does not mean that the income you earn will be taken as income in qualifying for a mortgage loan.  There are strict rules and regulations as to what constitute income by a mortgage loan underwriter.  It is not the mortgage loan underwriter that determines if the type of income you make can be used towards calculating your income for qualifying for a mortgage.  Income guidelines are strictly set by HUD and Fannie Mae and the mortgage loan underwriter needs to follow the guidelines with the type of income that can be use or not used in qualifying a mortgage loan applicant for a residential conforming mortgage loan.

Both HUD and Fannie Mae has dozens of pages just dedicated to income guidelines and covers everything from part-time income, self-employed income, hourly income, salaried income, bonus income, social security income, disability income, unemployment income, royalty income, alimony income, child support income,  and pension income.

Income Consistency Is What Underwriters Look For

The reason why underwriters are so strict when it comes to income is due to the fact that once they approve a mortgage loan to a mortgage borrower, they want to make sure that they have a stable job and that the income the borrower has been earning for the past two years will likely to be likely to continue for the next three years.  A good indicator that a mortgage loan borrower’s income will continue is by judging the employment and income history of the borrower’s past and by getting a verification of employment from the mortgage loan borrower’s employer stating that the likelihood of the borrower’s employment for the next three years is likely.

Hourly And Salaried Income

If a mortgage loan applicant is an hourly employee, the way mortgage underwriters calculate income is taking their hourly wage, multiply it by 40 hours, then multiply it by 52 weeks and divide it by 12 months to get their monthly gross income.  Salaried employee’s income is calculated by taking the annual gross salary and dividing it by 12 months will yield the monthly gross income.  Bonus and overtime income cannot be used unless the mortgage borrower had bonus income and overtime income for two years.  Bonus income and overtime income is normally averaged and a verification of employment is required stating that the bonus income and overtime income will likely to continue for the next three years.

How Do Mortgage Underwriters View Commission Income?

If you are a 1099 wage earner or on commission income, the income cannot be counted as income unless you have had the commission or 1099 income for at least two years and the likelihood of your commission will continue for the next three years.  Unlike hourly and W-2 wage earners, mortgage underwriters want to see 24 months of continous commission income and no gaps in employment.  For W-2 wage earners and hourly employees, they can have gaps in employment: If the worker has been laid off for 6 months or less and got a new job, 30 days of pay check stub is all that is required from the new job to qualify for a mortgage loan.  If the worker has been unemployed for six or more months, than the mortgage loan applicant needs to hold the new job for at least six months in order to qualify for a mortgage loan.  This case does not apply for 1099 wage earners or commissioned wage earners.  Two continous years of employment is required.

What If You Had Multiple Commission Jobs During The Past Two Years

If you were a 1099 or commission wage earner in the past two years but had more than one job, your commission and/or 1099 income can be used if you were employed in the same field.  For example, if you were a car salesman at Honda, Chevrolet, Ford, and most recently got a job at a Toyota dealership, the commission income can be used.

How Is Commission Income Calculated?

If you had similar commission income in the past two years and your current year to date commission income is in line with your previous years, then the mortgage loan underwriter will average your overall commission income.  If your most recent year commission income was substantially lower than the prior year commission income, then the lower most recent commission income will be used for mortgage income qualification.  If you have a job that is part salary and part commission and have been on the job for less than two years, only the salary part can be used for mortgage income qualification.  You cannot use commission and/or bonus income unless you had a history of getting commission and bonus income for at least 24 months.

Going From Commission Income To Hourly Or Salaried Income

If you were a 1099 or commission wage earner for many years but just got an hourly or salaried income job, you are in luck.  As long as your new hourly and/or salaried income job is a full time job and the likelihood to continue for the next three years is promising, you will qualify for a residential mortgage loan.  30 days of pay check stubs is required along a verification of employment.

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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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