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Income For Mortgage Loan Qualification Underwriting Guidelines

Gustan Cho Associates

Income For Mortgage Loan Qualification Underwriting Guidelines

This BLOG On Income For Mortgage Loan Qualification Underwriting Guidelines Was UPDATED On July 12th, 2019

Income For Mortgage Loan Qualification

There are various factors that are taken into account when qualifying for a residential mortgage loan.  

  • There are certain types of income that can and cannot be used
  • Qualified income is key when it comes to the income that can be used by lenders
  • Income for mortgage loan qualification is important in the calculation of debt to income ratios

How Lenders Underwriter Income And Liabilities

How Lenders Underwriter Income And Liabilities

Factors such as income, credit, assets, debt, and liabilities together with income are all important factors when qualifying borrowers for mortgage loans.

  • Income for mortgage loan qualification and the credit profile are the two most important factors that will decide whether borrowers qualify for mortgage loans
  • Income is much more important than credit
  • Borrowers with low credit scores and poor credit can qualify for home loans
  • However, borrowers with no income but phenomenal credit will not qualify for a mortgage loan
  • Lenders want to know borrowers ability to repay their home loans and the only way to prove it is with documented income

Types of Income That Can Be Used As Qualified Income For Mortgage Loan Qualification

Types of Income That Can Be Used As Qualified Income For Mortgage Loan Qualification

There are various types of income that can or cannot be used in qualifying for a residential mortgage loan.

  • Cash income
  • Full-Time income
  • Part Time income
  • Self-employed income
  • Asset income
  • Social security income
  • Pension income

Definition Of Qualified Income By Lenders

Definition Of Qualified Income By Lenders

Here Are The Types Of Income That Can Be Used As Qualified Income:

  • Cash Income:  
    • Cash income cannot be used under any circumstances unless it is declared on income tax returns for the past two consecutive years
    •  Cash and undocumented income are worthless in the mortgage world
    • Many folks in the restaurant and hospitality business do get legitimate cash gratuities
    • However, that type of income cannot be used as income for mortgage loan qualifications
  • Full-time income: 
    • W2 income is the best source of income that is acceptable
    • Borrowers who are full-time wage earners with full-time income get W2’s at the end of the year
    • Two years worth of W2’s and the most 30 days recent paycheck stubs is what most mortgage lenders will use to qualify income for mortgage loan qualification purposes
  • Self-employment income:
    • Self-employment income can be used for mortgage loan qualifications
    • However, the lender needs at least a two-year tax history on self-employment income
    • For those who write many items and have negative income, will not qualify for a mortgage loan
    • Many self-employed folks get a salary or hourly wage from their company and give themselves a paycheck every week
    • They get W2’s at the end of the year like working as an employee for a company
    • In cases like that, they can qualify their W2 income to qualify for a mortgage loan but need to own less than 25% of the company
    • Self-employed borrowers who own 25% or more of their business the underwriter will need the business tax returns as well
    • Taking huge losses on their company tax returns and giving themselves a salary will not work
  • Asset income: 
    • Borrowers who do not have a job and the only income is from their investments, we have mortgage loan programs that are called Asset Depletion Mortgage Programs
    • Borrowers who have a substantial investment account whether it is cash, securities, or retirement funds, we can take 5% of your assets and use that as your annual income
    • For example, borrowers who have a $1,000,000 securities investment account and have no other income, we can take 5% of the $1,000,000 which is $50,000 and use that annual income
  • Social security income: 
    • Social security income can be used as income and in most cases, Social security income can be grossed up by 15%
    • For example, if a borrower has a net social security income of $1,000, their social security income can be grossed up to $1,150
  • Pension income: 
    • Pension income can also be grossed up by 15% like social security income if it is not taxed

Bank Statement Mortgage Loans

Bank Statement Mortgage Loans

The days of no documentation mortgages and stated income mortgages were dormant since the real estate market crash but is not back. NON-QM Loans and Bank Statement Mortgage Loans for self-employed borrowers is one of our most popular loan programs at Gustan Cho Associates at Loan Cabin Inc.

  • NON-QM Loans is a large part of our business
  • There is no waiting period after bankruptcy and/or foreclosure with NON-QM Loans
  • Bank Statement Mortgage Loans For Self Employed Borrowers is very popular for business owners or self-employed borrowers who take substantial deductions on their tax returns
  • Either business or personal bank statements can be used for our bank statement mortgage loan program
  • 24 months of bank statement deposits are averaged to derive income
  • 100% of deposits are used if personal bank statements are used
  • 50% of deposits are averaged for the past 24 months if business bank statements are used

Importance Of Qualified Income

Importance Of Qualified Income
  • The main reason why income is so important is due to the fact that the lender needs to be convinced that the borrower has the ability to repay their mortgage loan
  • Lenders want to make sure that borrowers can make their monthly mortgage payments and not default
  • I have seen many cases where borrowers have a successful business, tons of assets and cash, credit scores over 800, and then get denied for a mortgage loan due to the fact that he had substantial losses on tax returns
  • Bank Statement Mortgage Loans is now an option for self-employed borrowers
  • However, I can get mortgage loan borrowers with credit scores as low as 500 FICO with open collections, late payments, prior bankruptcy, prior foreclosure, judgments, and charge offs approved for a mortgage loan
  • This holds true as long as they have a documented income that can be verified by the IRS

Home Buyers looking to get qualified with a direct lender with no lender overlays or alternative financing, please contact us at 1-262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays. No overlays on FHA, VA, USDA, and Conventional Loans.

Related> Income Qualification For Mortgage

Related> Guidelines On Income To Qualify For Mortgage

Related> Part Time Income For Mortgage Qualification

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