Income is probably the most important factor when it comes to getting approved for a residential mortgage loan. You can have perfect credit but if you have no income verification, there is no way you can get a residential mortgage loan. You can have had prior bad credit and/or no credit but if you have income, you will qualify for a residential mortgage loan. If you have had recent bad credit and/or late payments, you might have to wait a few months to get your credit re-established and/or correct your credit but as long as you have income, you will get a mortgage loan approval depending on how your credit is. It is not if you will get a mortgage loan approval, but a matter of when you will get the mortgage loan approval. There are various types of income types which we will discuss in the next paragraph.
Types Of Income
There are various types of incomes when it comes to mortgage qualification requirements. Cash income does not count as income. All income types needs to be documented and reported to the Internal Revenue Service and the mortgage lender will verify tax returns and/or W-2s, and/or 1099’s. If you are an hourly or salaried employee and get W-2 income, you have no problem when it comes to qualifying for a residential mortgage loan. You can also have gaps in employment if you are a W-2 employee. If you have been unemployed for six months or less, you need 30 days of pay check stubs from your new employer for you to be able to qualify with the income from your new job. If you have been unemployed for six or more months, you need to have been on your new job as a full time employee for at least six or more months for you to qualify for a residential mortgage loan. However, if you are a 1099 employee or are an independent contractor and/or are a self employed, you normally need two year of tax returns in order to qualify for a residential mortgage loan. Self employed borrowers have a tougher time to qualify for a residential mortgage loan than W-2 wage earners.
Self Employed Borrowers: One Year Tax Returns With Freddie Mac
As mentioned earlier, self employed borrowers normally have a tougher time qualifying for a residential mortgage loan than W-2 wage earners. In general, mortgage lending guidelines require that self employed borrowers provide two years tax returns in order for them to be eligible to qualify for a residential mortgage loan. Fannie Mae’s Automated Underwriting System will not issue an approve/eligible per DU FINDINGS unless self employed borrowers have two years tax returns. However, Freddie Mac’s Automated Underwriting System will allow self employed borrowers one year’s tax returns per LP FINDINGS if the mortgage loan applicant is a strong mortgage loan applicant. For example, if the mortgage loan applicant has high credit scores, good income, large down payment, and substantial in reserves, it is very likely that Freddie Mac will only require one year tax returns for self employed borrowers. However, if the self employed borrower has low credit scores, prior bad credit, low down payment, little to no reserves, high debt to income ratios, then the one year tax return requirement will not most likely apply.