Using Overtime Income To Qualify For Mortgage Loans

Can I Use Overtime Income As Qualified Income To Qualify For A Mortgage?

This Article Is About  Overtime Income To Qualify For Mortgage Loans 

Overtime Income and other income is allowed as qualified income for mortgage borrowers. However, overtime income and/or other income are only allowed if the borrower has a two-year history of making such income. Also, the likelihood of continuation for the next three years has to be likely in the borrower earning overtime income and other income. Base income is always used. Overtime income, part-time income, bonus income can be used. Mortgage underwriters want to see overtime income and other income is stable and is likely to continue for the next three years. In this blog, we will discuss overtime income and other income as qualified income when qualifying for home loans.

Using Overtime Income Qualified IncomeUsing Overtime Income

Lenders want to make sure that borrowers have the ability to repay their new proposed mortgage housing payments. Lenders want to feel confident that borrowers have sufficient qualified income to be able to repay their new housing payments timely without stress. Only qualified income counts as income in qualifying for home loans. Cash income is not considered qualified income.

What Types Of Income Can Be Used As Qualified Income To Qualify For A Mortgage

Borrowers can use the following types of income as additional qualified income:

  • Overtime Income
  • Part-time income
  • Bonus Income
  • Commission Income
  • Royalty Income
  • Other qualified income reporting on income tax returns

In order to use other income as qualifying income, the other income needs to be seasoned for at least 24 months. Mortgage underwriters want to feel confident that other income will continue for the next three years. To confirm qualified income, lenders will request verification of employment by employers.

Verification Of Employment

Loan officers should never issue pre-approvals on borrowers with other types of income unless they have verification of employment. Employment verification is a form used by lenders. VOE forms need to be completed by employers. It breaks down the borrower’s income summary for the past two years. It also asks the question of whether the overtime, part-time, bonus income will continue for the next three years. There is no guarantee but the form asks whether it will be likely to continue. If the employer checks NO, then the other income cannot be used.

Using Overtime Income That Is Declining And Irregular Income

Which means falling and irregular income

Mortgage underwriters have the discretion on whether or not other income can be used as qualified income. If borrowers have declining income from one year to the next, then the other income cannot be used as qualified income. For example, if a borrower has overtime income of $10,000 in 2017 and $5,000 in 2018, this is drastic in declining income. It is up to the mortgage underwriter. Underwriters have full discretion on whether or not to allow declining income. If the declining income was due to the borrower being off from work due to maternity leave or sick leave, then it is up to the mortgage underwriter whether or not to accept it. Just because one underwriter says no does not mean another underwriter will say yes. Irregular overtime income can be an issue. If a worker has overtime income for several weeks and then the overtime stops and recontinues months later, this is considered irregular overtime income. Lenders want to see consistency in overtime and/or other income. Declining and irregular income is not viewed favorably by lenders.

Exemption To The 2-Year Seasoning Rule

Gustan Cho Associates will allow overtime and/or other income to be used as qualified income if the borrower has other income for at least 18 months. This is on a case-by-case scenario basis only for borrowers with strong credit and lower debt to income. This is also based on mortgage underwriter discretion. For example, if a borrower had overtime income of $1,000 per month for at least 18 months, we will allow the following:

  • Take the average of the 18 months income
  • Divide that income by 24 months
  • The yielding income will be used as qualified income

This may or may not be used depending on underwriting discretion. If the underwriter believes that the overtime and/or other income is solid, the 2-year exemption on other income can come into play. For more information on this topic, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. We are direct lenders with no overlays on government and conventional loans. We are also experts on non-QM, bank statement mortgages, and alternative financing loan programs.

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