Mortgage Income Guidelines And DTI Requirements

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Mortgage Income Guidelines And DTI Requirements

This BLOG On Mortgage Income Guidelines And DTI Requirements UPDATED On May 15th, 2018  

There are Mortgage Income Guidelines borrowers need to meet to qualify for home loans. Income is one of the most important factors in getting a mortgage loan approval. Days of no doc or state income loans are long gone. Borrowers can have the best credit in the world but without documented income, they will not qualify for a home loan. Gustan Cho Associates Mortgage Group does offer bank statement loans for self employed borrowers. However, non self employed borrowers need qualified income to qualify for a home loan.

  • Per Mortgage Income Guidelines, mortgage underwriters look for verified qualified income when underwriting a mortgage file
  • Mortgage Income Guidelines have specific guidelines when it comes to income qualification
  • Cash income does not count in the mortgage and lending world
  • Cash income cannot be used as income
  • All income for qualifying for mortgage needs to be verified with the Internal Revenue Service
  • Income that can be used as income for qualifying for mortgage are the following:
    • hourly income
    • salaried income
    • social security income
    • pension income
    • disability income
    • child support income
    • alimony income
    • part time income
    • royalty income
    • over time income
    • bonus income
    • self employment income

Mortgage Income Guidelines On W-2 Income

Home loan applicants who are W-2 full time wage earners can qualify for a mortgage.

  • Salaried wage earners income will be qualified as following:
    • by taking the salaried wage earner’s annual income and dividing it by 12 months
    • gross monthly income will be borrowers qualified income
  • Hourly wage earners income will be calculated by the following:
    • multiplying the hourly rate by 40 hours to get weekly gross income
    • multiplying weekly gross income and multiplying by 52 weeks to yield annual hourly full time income
    • take the annual income and dividing it by 12
    • monthly gross income will be used when qualifying income for mortgage

Mortgage Income Guidelines On Additional Income

Part time income, overtime income, and bonus income can be used as income for qualifying for mortgage.

  • This additional income on top of full time income can be used as qualified income as long as there has been a two year history
  • If borrower has been getting part time income, overtime income, and/or bonus income and it was not declining income, these income is considered qualified income
  • A verification of employment will be required
  • Likelihood of additional income to continue for next three years needs to be promising

Social Security Income And Other Income

The following income can be used as qualified income:

  • Social security income
  • Pension income
  • Disability income

The above income can be used as qualified income for qualifying for mortgage.  In most cases, these types of income can be grossed up as long as they get a net check and is not taxed. Non taxed social security and/or pension income can be grossed up by 15%.

Child Support Income And Alimony Income

Child support income and alimony income can be used as income for qualifying for mortgage as long as the likelihood for the next three years can be documented. Most states, child support needs to be paid until the child reaches the age of 18 while other states the age limit is 21 years old.

Self Employment Income Mortgages

Self employment income and income from 1099 wage earners can be used as long as they have a two year history of steady self employment income and/or 1099 income.

  • Two years of tax returns with all schedules are required in order for the mortgage loan underwriter to analyze the self employment and/or 1099 income

Gustan Cho Associates Mortgage Group offers bank statement loans for self employed borrowers.

  • No income nor income tax returns are required
  • Need to be self employed to qualify. 24 months bank statement deposits are averaged to derive qualified income
  • Self employed borrowers can use personal or business bank statements
  • If personal bank statements are used, then 100% of the deposits are averaged over 24 months
  • If business bank statements are used, then 50% of deposits over 24 months are averaged
  • Needs to be one bank statement from the same bank
  • 10% to 20% down payment is required
  • Amount of down payment depends on borrowers credit scores
  • There is no private mortgage insurance required on bank statement loans for self employed borrowers
  • There is no maximum loan limit

Mortgage Income Guidelines On Declining Income

Declining income and irregular income can become a big issue when it comes to income for qualifying for mortgage.

Mortgage lenders want to see consistency in income.

  • If a borrowers income was less one year but the following year the income was more, then there is no issues
  • However, if the borrower’s income is less the most current year, then the lesser income will be used and that year’s 12 months average will be used to calculate income
  • If the borrower’s income was less the older year and more the most current year, then the average of 24 months will be used for income qualifying for mortgage
  • Here is a case scenario:
    • If the borrower’s most recent year of income has been significantly less than the older year
    • Then the mortgage loan borrower’s income may not be able to be used to the significant irregularity in income
    • Agood letter of explanation needs to be be provided

With substantial declining income from one year to the next, the mortgage underwriter has discretion to deny the loan. Lenders wants to see either consistent or increasing income and NOT declining income.

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