Income is probably the most important factor when it comes to get a residential mortgage approval.  You can have the best credit and credit score in this planet but if you have income, you cannot qualify for a mortgage loan.  However, on the flip side, if you have income but bad credit, you can qualify for a residential mortgage loan.  Depending how bad your credit situation is, as long as you have income, you WILL qualify for a residential mortgage loan.  If your credit is really bad where you have gotten recent late payments reported on your credit report, you might have to wait a few months but as long as you have income which you can document, you will qualify for a mortgage loan.

Types Of Income

The most common types of income is hourly or salaried income where the worker get regular pay check stubs and a W-2 at the end of the year.   Mortgage lenders will calculate income based on your past 30 days pay check stubs and will want to see two years W-2s and 2 year tax returns.  Tax returns are needed to make sure that your writeoffs does not affect your gross income.

Self Employed And Commission Income Wage Earners

There are 1099 income for self employed or commissioned employees.  In order to qualify for a mortgage loan for folks who are 1099 income employees, here is how it works:

1.  Two years 1099 will be averaged if the older year is the same or lower than the most recent 1099 income.  For example, if your 2012 1099 income was $50,000 and your 2013 1099 income was $100,000, you add the two years 1099 income and divide it by 2 which yields $75,000.  $75,000 will be your annual income that will be used.

2.  If the most recent year 1099 income is less than the older 1099 income, then the two 1099 incomes are not averaged.  The lower recent income is used for income qualification.  For example, if a mortgage loan borrower 1099 income for 2012 was $100,000 and the 2013 1099 income is $50,000, then the $50,000 income will be used to qualify income for the mortgage loan borrower.  A letter of explanation will be required why the income was decreased as well.


Other income such as social security income, pension income, part time income, alimony income, child support income, overtime income, and royalty income can be used as long as the income is likely to continue for the next three years.  With part time income and overtime income, the mortgage loan borrower needs to show that he or she has been getting part time income and overtime income for the past two years and that income will continue for the next three years.  Same with royalty income.  Just because you had a history of other income for the past two years does not guarantee that you can use the other income unless there is documentation that the other income will likely continue for the next three years.

By Gustan Cho

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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