Qualifying For Mortgage
Income is the most important factor in qualifying for a mortgage. You can have the most perfect in the world but if you have no income documentation or declare low income, you may not qualify for a mortgage loan. Mortgage lenders require 2 years tax returns, 2 year W-2s, 2 year 1099’s in order to see whether or not you meet the required debt to income ratios in qualifying for a mortgage. Unreimbursed expenses can be deal killers. Mortgage lenders go by adjusted gross income on the borrower’s tax returns.
Self Employed Mortgage Loan Borrowers
If you are a business owner or a 1099 wage earner, you need to provide your mortgage lender with 2 years tax returns and 2 year 1099 income. Tax returns are definitely required because most self employed borrowers write off expenses on their tax returns and the way mortgage underwriters calculate income is the adjusted gross income after all deductions and take the 24 month average of the adjusted gross income. However, the average of the two years is only averaged if the adjusted gross income is the same or is higher in the most recent year. If the adjusted gross income is lower the most recent year, the income of the lower year will be used and the two year adjusted gross income average will not be used. If the underwriter sees that the adjusted gross income has been declining and the likelihood is likely to decline, then the income cannot be used and the mortgage loan borrower would need to go FHA and get a non-occupant co-borrower in order to qualify for the mortgage loan.
1099 Wage Earners
Mortgage loan borrowers who are 1099 wage earners such as car salesman, realtors, or other sales workers, mortgage lenders will require two years 1099’s and two years tax returns. Tax returns are required to see how much the mortgage borrower has written off on their tax returns and the gross adjusted income will be used to calculate income. If the two years 1099’s are similar, a 24 months average will be used to calculate monthly gross income. However, if the mortgage loan borrower shows declining income, then the most recent lower income will be used and it will be averaged for 12 months to determine monthly gross income in qualifying for a mortgage.
W-2 Wage Earners
If you are a W-2 wage earner, mortgage lenders will go off the most recent paycheck stubs reflected on the past 30 days paycheck stubs and from the employer’s verification of employment. Two years W-2s are required but there is a lot of leniency with W-2 wage earners. Here are some case scenarios:
If a mortgage loan applicant has been working for a company part time status for the past two year or even less but got promoted to full time status, mortgage loan underwriters will use the full time status income to qualify for the mortgage income debt to income qualifications.
If a mortgage loan applicant has been working for the same company and got a promotion and a hefty increase in pay, the new pay will be used to calculate income as long as the verification of employment confirms that.
If a mortgage loan applicant moved jobs from one job to another job and the new job offered a high pay increase, the new job’s pay will be used to qualify income even though the W-2s for the past two years was substantially less.
If a mortgage loan applicant has had gaps in employment via W-2s, they can qualify for a mortgage as long as they found a new job within six months and the gap in employment was not greater than 6 months. If the gap in employment was longer than six months, then they would have to work in their new job for at least six months to qualify with the pay of the new job.
Overtime Income To Qualify For Home Loan
Overtime income can be used for additional income as long as the mortgage loan borrower can document that he or she has been getting overtime income consistently for the past two years. Bonus income can be used in qualifying for a mortgage as long as the mortgage loan borrower can show that they have been receiving bonus income for the past two years. Alimony and child support income can be used as long as the mortgage loan borrower is likely to receive alimony and child support income for the next three years.
W-2s Only And No Tax Returns Required
If you are a W-2 wage earner but write off a lot of expenses on your tax returns, the write offs from your tax returns will negate the W-2 income and many times due to the write offs the chances are that you do not qualify for a mortgage loan. However, I now have a great mortgage loan program for FHA insured mortgage loan borrowers where as long as you are a W-2 wage earner, no tax returns are required and only two year W-2s are required. However, the borrower needs only to have W-2 wages and not 1099 wages. If the mortgage loan applicant has both W-2 income and 1099 income, then two years tax returns are required. As long as the mortgage loan borrower has W-2 income only, then the two years tax returns will not be used and will not be required to be submitted and the write offs from the two years tax returns will not be used.
2015 Update On W-2 Income Only Mortgage Loans
Effective immediately, we no longer offer No Tax Returns W-2 Income Only Home Loans.