What Types Of Other Income In Mortgage Qualification Can Be Used
This BLOG On What Types Of Other Income In Mortgage Qualification Can Be Used Was UPDATED And PUBLISHED On April 30th, 2020
Income, other income, liabilities, assets, and credit scores are the factors that determine whether mortgage borrowers qualify and how much they qualify on a mortgage loan. Other Income In Mortgage Qualification can be used besides just the main full-time income.
- The mortgage underwriter also will analyze credit report and see the payment history
- Mortgage underwriters will do a third party national search and determine whether borrowers have any public records and whether borrowers meet minimum mortgage guidelines
- Income and liabilities are used to determine borrowers debt to income ratio
- In the event borrower’s income cannot be documented, it can hurt chances in getting qualified for a mortgage loan
- Many self-employed borrowers and those who receive cash income normally run into high debt to income ratio problems
- If borrowers do not meet minimum debt to income ratio requirements, then they need other income in order to meet the minimum debt to income ratio requirements
In this article, we will discuss and cover What Types Of Other Income In Mortgage Qualification Can Be Used.
Front End Debt To Income Ratios
Debt to income ratios are calculated as follows:
For front end debt to income ratios, also known as the housing debt to income ratios, it is the following:
- the monthly principal
- property taxes
- homeowners insurance
- homeowners association fee ( if applicable )
take the sum of the above and divide by the borrowers, or borrowers, total monthly gross income.
Back End Debt To Income Ratios
Here is how back end debt to income ratios calculated:
It is the total monthly obligations such as the following:
- Monthly mortgage payments
- Automobile payments
- Student loan payments
- Installment loans
- Revolving minimum monthly payments
Minimum credit card monthly payments, divided by the total monthly gross income of the borrower, or borrowers.
Debt To Income Ratio Requirements On Mortgage Programs
With FHA insured mortgage loans, the maximum front end debt to income ratios allowed is 46.9% and the maximum back end debt to income ratios allowed is 56.9%.
- For conventional loans, the debt to income ratios are much lower
- However, the maximum debt to income ratios can be as high as 50% DTI
- It depends on how strong the borrowers are per the Automated Underwriting System
- VA Loans do not have a debt to income ratio caps and it depends on AUS Findings
- USDA Loans normally cap debt to income ratios at 29% front end and back end of 41% DTI
Jumbo Mortgages cap debt to income ratios at 50% DTI.
Other Income To Qualify For Home Loan
Other income can be used to qualify for a residential mortgage loan and is allowed.
- Part-time income, overtime income, bonus income can be used as long as it has been seasoned for two years
- Social security income can be used and most often can be grossed up by 15%
- Pension income can also be used to qualify for a mortgage loan and if the recipient receives non-taxable income gets a net check
- Then pension income can also be grossed up by 15%
Royalty income can be used if it will continue on for the next three years.
Alimony And Child Support Income
Alimony and child support income can be used if and only if the alimony and child support will be continued for the next three years and you can provide documentation.
- Overtime income can be used if, and only if, the borrower has had continuous overtime for the past two years
- Human resources department of the borrower can attest that future overtime is likely to continue for the next three years
- Part-time job income can be counted as other income if the borrower has had a part-time job for the past two years
The likelihood of part-time income to continue for the next three years needs to be likely in order to count.
Other Income In Mortgage Qualification With Substantial Write-Offs On Tax Returns
Many borrowers who had substantial one time losses on their income tax returns can have those one-time losses exempt from qualified income.
- As long as huge losses on one time write-offs on tax returns will not continue, then we can take that loss out of qualified income
- Other instances of where we can exempt huge write-offs and losses on tax returns are when the mortgage borrower has closed out the business by closing out the LLC or S-Corp
This BLOG On Other Income In Mortgage Qualification Was Updated On April 30th, 2020