Income Qualification For Mortgage

Income qualification for mortgage loans is one of the most important factors in getting a residential mortgage loan approval.   There are federal mortgage lending rules and guidelines when it comes to income qualification for mortgage and there are mortgage lender’s income qualification for mortgage due to the mortgage lender’s own mortgage lending overlays.  Mortgage lender overlays are guidelines that are added on top of the minimum federal mortgage lending guidelines.  For example, declining W-2 income can be used under federal mortgage lending income qualification for mortgage purposes, however, a particular mortgage lender might have their own mortgage lender overlay where declining income cannot be used as income; We will discuss this topic in more detail later on this blog.  If you are a 1099 wage earner, you will need two years of tax returns and two years of 1099 in order to qualify for a residential mortgage and all of your deductions will be deducted from your gross income and your adjusted income will be used in income qualification for mortgage purposes.

Other Types Of Income

All cash income cannot be used to qualify for income nor any bonus income, overtime income, and part time income that has not been seasoned for two years.  In order for you to be able to use bonus income, overtime income, or part time income, you must have had a consistent two year history of receiving those income and the employer needs to state that your bonus income, overtime income, or part time income is likely to continue for the next 3 years.  If the bonus income, overtime income, or part time income is rising year after year, the mortgage lender normally averages the past two years of bonus income, overtime income, or part time income to derive to your monthly gross income from these sources.  If your bonus income, overtime income, or part-time income has been decreasing, then the most current year of your bonus income, overtime income, or part time income is used to qualify income for mortgage.  If your most recent YTD bonus income, overtime income, or part time income is significantly less than the previous year’s bonus income, overtime income, or part time income reflected on your W-2s, then the mortgage lender can decide not to give you credit for these other income sources.  This depends on your mortgage lender.  This concept applies for W-2 income in general.

Inconsistent W-2 Income For Income Qualification For Mortgage

Most mortgage lenders want to see a two year employment work history from a mortgage loan borrower in the same job and same field with a consistent income history in the past two years.  However, many times that is not the case but that does not mean the mortgage loan applicant does not qualify for a mortgage due to irregular income.  You can be a 1099 wage earner and get a new job as a W-2 and qualify for a residential mortgage loan as long as you can provide 30 days paycheck stubs and a verification of employment from your employer stating that your new employment is likely to continue and the new monthly gross income will be used for income qualification for mortgage.

Irregular Income In Past 2 Years

However, what happens if you have had irregular work hours in the past two years due to irregular hours?  On cases like these, your past two year’s W-2 income will be averaged if the most current year income is greater than the prior year W-2 income.  If your most current year is lower than the prior year, the lower year W-2 income will most likely be used and averaged with your YTD  W-2 wages.  If your YTD W-2 income is significantly lower than your prior year W-2 wages and you are showing a declining in income, then the mortgage loan underwriter will most likely just go off your YTD W-2 wages average in calculating income qualification for mortgage.  Some mortgage lenders will have their own mortgage lender overlays where they will not use any of the income wages if they see consistent declining income.

Part Time Income To Full Time Income

If you have been a part time W-2 employee or a probationary employee but just got promoted to a full time employee or permanent employee with a dramatic increase in income, then your current new income will be used in income qualification for mortgage.  For example, if you have been working in your job for the past two years as a part time employee making $10.00 per hour and you recently got promoted to a full time employee and are now making $15.00 per hour, the $15.00 per hour will be used for income qualification for mortgage as long as you can get a verification of employment from your employer stating the fact that you are now a full time employee and your full time employment status will continue.  A 30 day paycheck stub will be required prior to closing on your mortgage loan.

Gaps In Employment

Federal income guidelines for income qualification for mortgage only require two year employment history.  Gaps in employment is allowed.  If you have been unemployed or had employment gap for six months or less, than 30 days of paycheck stubs is required on your new job.  If you have been unemployed for 6 or more months, six months of seasoning in your new job is required.  For example, say you just got a new job but have been unemployed for the past two years.  If this is the case, then two years of employment history prior to your out of work period is required and you need to be on your new job for at least six months in order for you to qualify for a residential mortgage loan.  On the flip side, if you were unemployed for 5 months and 3 weeks and just got a new job, you will qualify for a residential mortgage loan and can close on your mortgage loan as long as you can provide 30 days of paycheck stubs from your new job as well as a verification of employment from your new employer verifying that you are employed full time and that your employment status is likely to continue.

Recent College Graduates

If you recently have graduated from a technical school or are a college graduate and just got your first job and have no prior employment history, you can qualify for a residential mortgage loan without providing two years prior employment history.  Your time as a full time student is equivalent to work history and all you need to provide the mortgage loan underwriter is your school transcripts.

Gustan Cho

www.gustancho.com

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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