Income Qualification

Income is one of the most important factors when it comes to qualifying for a residential mortgage loan.  The past days of no income, no documentation loans have long been gone.  Cash income does not count in the mortgage lending world.  All income needs to be sourced and documented.  For those mortgage loan applicants who are self employed or are 1099 wage earners, two years of tax returns are required.  For those W-2 income wage earners, the most 30 days of paycheck stubs are required and most mortgage lenders want to see two years of W-2s as well as tax returns.  We have just launched a new residential mortgage loan product where only two years W-2s are required and the past two years tax returns are no longer required.  This is not offered by all wholesale mortgage lenders and are only actually offered by one of our wholesale mortgage lender.

Why Are 2 Years Tax Returns Required?

Even though your are a W-2 income wage earner, most mortgage loan underwriters will ask for two year tax returns.  The reason being is because if you write off tax deductions from your income taxes, those writeoffs will be deducted from your monthly gross income.  This reduction of gross income will often times hurt you when it comes to your debt to income ratios and many times, due to the income tax deductions, many cannot qualify for a residential mortgage loan.  For example, many police officers and fire fighters get uniform allowances and many of them do write off expenses for uniforms, weapons, equipment, and other on the job related write offs.  Unfortunately, these write off will bite them in the rear end when it comes to qualifying for debt to income ratios because some of these write offs can add to several thousands of dollars.  These write offs are then subtracted from the mortgage loan applicant’s gross monthly income where in many cases, the mortgage loan applicant will exceed the maximum debt to income ratios allowed.  Many mortgage loan applicants try to ammend their tax returns where they want to reverse the write off.  However, if you ammend your tax returns, you need to wait six months before the ammended tax returns can be used to qualify for a residential mortgage loan.  With the new W-2 income only mortgage loan program, no tax returns are required.  For those who have alot of write offs and/or a side business where they take huge loses but have W-2 income, the W-2 income only will be used to qualify for the mortgage loan.

Gustan Cho

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.


  1. Behr says:

    I have W2 income from my day job and also have a side business as a sole proprietor real estate agent. I write off many of my expenses from the side business on my taxes on a schedule C. Will I be able to approve for a W-2 only loan program?


  2. Gustan Cho says:

    The answer to you question is yes. The W-2 only program without submitting tax returns is only available for FHA Loans. You have to be a full time W-2 wage earner and two years of W-2s are required. Tax returns cannot be submitted to the underwriter. If the mortgage loan processor submits the tax returns by mistake, the whole deal is dead.

  3. Fred brooks says:

    looking for a W2 only morgage loan company.