How Do Underwriters Qualify Increasing Income In DTI Calculations
This BLOG On How Do Underwriters Qualify Increasing Income In DTI Calculations Was PUBLISHED On June 27th, 2019
Income is probably the most important factor in qualifying for a mortgage.
- As mentioned in many of my articles, you can have the highest credit scores possible but if you do not show enough documented income, you cannot qualify for a mortgage loan
- On the flip side, you can have credit scores as low as 580 FICO, prior bad credit, open collections, prior bankruptcy, prior foreclosure, prior deed in lieu of foreclosure, prior short sale
- But if you have sufficient documented income, you can qualify for a mortgage loan
- This only holds true as long as you have had timely payment history in the past 12 months and re-established credit
In this blog, we will discuss How Do Underwriters Qualify Increasing Income In DTI Calculations.
How Do Underwriters Qualify Increasing Income In DTI Calculations During Past 2 Year Employment History
All lenders will require a two-year employment history.
- The employment history does not have to be being employed at the same job
- You can have gaps in employment
- But as long as you have an overall two-year employment history you will qualify for a mortgage
- Those first time home buyers or home buyers who have been a full-time student and do not have a two-year employment history can still qualify for a mortgage loan
- This holds true as long as they can prove that they have been a full-time student and provide college or technical school transcripts
Post high school schooling can be substituted in lieu of employment history. Part-time employment history is part of the two-year employment history.
How Do Mortgage Underwriters Calculate Income?
Here is how mortgage underwriters calculate income in general. Again, different mortgage companies may have overlays in how underwriters view income, especially increasing income.
- If you are a self-employed borrower or a 1099 wage earner, two years of tax returns and two years of 1099 is required
- If your two years adjusted gross income is similar the two years, then the mortgage underwriter will average the two years income to derive to your monthly gross income to calculate your debt to income ratios
- If your income is less than the most current year then your prior year, then the most current year gross adjusted income will be used to calculated your monthly adjusted gross income to calculate your debt to income ratios
- If your most current income is substantially less then your prior year’s adjusted gross income, then your income may not be used unless you can prove that your adjusted gross income will continue to increase for the next three years and the reason of the substantial decline in income was a one-time incident
- The proof will be required
Gaps In Employment In The Past 2 Years:
- If you had gaps in employment of under 6 months and got a new job, your new job wages will be used
- The previous income will not come into play
- This holds true as long as your employer can verify it through verification of employment stating that you are full-time status and your income and job will likely to continue for the next three years
Over time, part-time, bonus income:
- Over time, part-time, and bonus income can be used towards debt to income ratio qualification
- This holds true as long as you have had a two-year continuous history and the likelihood is likely to continue for the next three years
Going from part-time wage earner to full-time wage earner and showing increasing income:
- There are many workers who get hired on a part-time status or probationary status and get offered full-time status with a jump in wages. This type of case happens quite often
- In cases like these, mortgage underwriters will use the new full-time status and wages
- This holds true as long a the verification of employment verifies this fact