This BLOG On Importance Of Income For Mortgage Qualification Was UPDATED And PUBLISHED On January 21st, 2020
There are several factors that are evaluated in the mortgage qualification process. The Importance Of Income For Mortgage Qualification is due in debt to income calculations.
- Income, credit scores, prior credit history, assets, debts, and liabilities are all important factors in the mortgage process
- All of the above is taken into consideration by lender’s underwriter in the mortgage process
- Every single factor will be closely scrutinized and evaluated by the lender’s underwriter before issuance of loan approval
- However, the most important factor out of the ones listed above is the income factor
- A mortgage applicant can have the best credit scores in this planet and all the assets in the world but without qualified income, there will be no mortgage approval
- Borrowers can have bad credit and no assets and get a mortgage loan approval
- But with little or no income, the likelihood of getting a mortgage loan approval is not going to happen
- Our viewers can now understand the Importance Of Income For Mortgage Qualification
In this article, we will cover and discuss the Importance Of Income For Mortgage Qualification In Home Loan Process.
What Is Qualified Income?
Prior to the real estate and credit meltdown of 2008, homebuyers could qualify for a mortgage loan even if they did not declare a lot of income.
- The mortgage industry had mortgage loan products like no documentation mortgage loans or state income loans, which mortgage loan applicants state their own income and the mortgage lender does not verify it
- However, after the mortgage crisis and banking collapse of 2008, those products have evaporated overnight
- New mortgage laws, regulations, and guidelines such a QM, SAFE ACT, High Cost were implemented
Income in the mortgage qualification process is the single most important factor in getting a mortgage loan approval.
How Do Lenders Qualify Borrowers?
Credit, assets, debts, and liabilities all play an important part in the mortgage qualification process
- A home buyer can qualify for a mortgage loan with prior bad credit as long as they have the income
- Home Buyers can qualify for FHA Loans with credit scores as low as 500 FICO.
- Home Buyers can qualify for FHA Loans with 3.5% down payment requirement with credit scores
- Borrowers need to provide proof of income either by two years of tax returns and two years of W2’s
- Cash or income not sourced cannot be used as qualified income
- Mortgage Loan Applicants can have prior open collections and charge offs and still qualify for a residential mortgage loan without needing to pay off the old collection accounts and charge offs
To qualify for FHA Loans, mortgage applicants do need to be documented and qualified income.
Home Loan With Judgment
Judgment is one of the worst negative credit items anyone can have on the credit report
- I can get borrowers approved for a mortgage loan with an unsatisfied civil judgment
- But again, they need to have proof of a written payment agreement and have been paying for at least three months
- There are ways to qualify for home loans with outstanding judgments
- Judgments can be paid off at closing
- Borrowers can qualify for mortgage loans with outstanding judgments as long as they have a written payment agreement
- The judgment debtor needs to have a written payment agreement with the judgment creditor and be on a payment plan with a least three months of timely payments
Verification is required by providing three months of canceled checks and/or bank statements.
Importance Of Income For Mortgage Qualification And Overtime Income
There are various types of income that can be used in the mortgage qualification process.
- Of course, the most common income that is used is wage income which is either salaried income or hourly income
- Overtime income can be used as long as borrower had consistent overtime income over the past two years
Overtime income under 2 years cannot be used in the mortgage qualification process, unfortunately.
Types Of Income That Can Be Used For Mortgage Qualification
- Social security income can be used and can be grossed up by 15%.
- For example, if a recipient of social security income with a net monthly paycheck of $1,000, it can be grossed up by 15%
- That $1,000 social security income grossed up by 15% reflects monthly income of $1,150.00 in the mortgage qualification process
- Pension income can also be used for mortgage qualification
- Pension income can also be grossed up if not taxed like social security income
- Rental income is another common income that can be used as long as you have declared the rental income on income taxes for the past two years.
Borrowers who own real estate, depreciation can be added as additional income.