Other Income To Qualify To Meet Debt To Income Ratio Caps

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Other Income To Qualify To Meet Debt To Income Ratio Caps

This BLOG On Other Income To Qualify To Meet Debt To Income Ratio Caps Was UPDATED On October 23rd, 2018

Income is probably the most important factor when it comes to get a residential mortgage approval. Many self employed borrowers often run into problems in qualifying for mortgages due to the many write offs they claim on their income tax returns. Gustan Cho Associates now offers bank statement loans for self employed borrowers. No tax returns are required on bank statement mortgage loans for self employed borrowers.

  • Borrowers can have the best credit and credit score in this planet but with no income, borrowers cannot qualify for a mortgage loan
  • However, on the flip side, borrowers who have qualified income but bad credit, they can qualify for a residential mortgage loan
  • Depending how bad credit situation is, as long as borrowers have income, they WILL qualify for a residential mortgage loan
  • If credit is really bad where they have gotten recent late payments reported on credit report, borrowers might have to wait a few months until their credit improves
  • But as long as borrowers have income which they can document, they will qualify for a mortgage loan

With bad credit, it is not if they will qualify for mortgage but when. Bad credit is like a bad hangover. It will improve as time passes.

Types Of Income That Can Be Used As Qualified 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.

  • Lenders will calculate income based on the following:
    • Past 30 days pay check stubs
    • Two years W-2s
    • 2 year tax returns
  • Tax returns are needed to make sure that write offs does not affect gross income

Gustan Cho Associates also offers W-2 Only Income Mortgage Loan Programs for wage earners where no tax returns are required.

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:

  • Two years 1099 will be averaged
  • If the older year is the same or lower than the most recent 1099 income
  • For example, here is a case scenario:
    • if 2012 1099 income was $50,000
    • and 2013 1099 income was $100,000
    • then add the two years 1099 income
    • and divide it by 2 which yields $75,000
  • $75,000 will be annual income that will be used
  • 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

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
  • The mortgage underwriter needs to be convinced that the likelihood of the part time and/or overtime income will continue for the next three years is very likely
  • Same with royalty income
  • Just because borrower had a history of other income for the past two years does not guarantee that borrowers can use the other income
  • This holds true unless there is documentation that the other income will likely continue for the next three years

Qualifying For Bank Statement Loans For Self Employed Borrowers

Self Employed Borrowers can now qualify for bank statement mortgage loans for self employed borrowers.

  • How this loan program works is no tax returns are required. 24 months personal or business bank statement deposits are averaged to derive monthly qualified income
  • Needs to be the same bank statements for the past 24 months
  • If personal bank statements are used, then 100% of deposits are averaged in past 24 months
  • If business bank statements are used, then 50% of deposits are averaged in the past 24 months

Home Buyers or Homeowners who need to qualify for mortgage with direct lender with no lender overlays on government and/or conventional loans can contact us at The Gustan Cho Team at Loan Cabin at 262-716-8151 or email us at gcho@loancabin.com. We are available 7 days a week,evenings, weekends, and holidays.

By Gustan Cho

www.gustancho.com

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