Mike Gracz The Mortgage Expert,
Publish On: February 25, 2022
In this blog, we will discuss and cover income for mortgage loan qualification underwriting guidelines. There are various factors that are taken into account when qualifying for a residential mortgage loan. There are certain types of income that can and cannot be used. Qualified income is key when it comes to the income that can be used by lenders. Income for mortgage loan qualification is important in the calculation of debt to income ratios
How Lenders Underwriter Income And Liabilities
Factors such as income, credit, assets, debt, and liabilities together with income are all important factors when qualifying borrowers for mortgage loans. Income for mortgage loan qualification and the credit profile are the two most important factors that will decide whether borrowers qualify for mortgage loans. Income is much more important than credit. Borrowers with low credit scores and poor credit can qualify for home loans. However, borrowers with no income but phenomenal credit will not qualify for a mortgage loan. Lenders want to know borrowers’ ability to repay their home loans and the only way to prove it is with documented income
Types of Income That Can Be Used As Qualified Income For Mortgage Loan Qualification
There are various types of income that can or cannot be used in qualifying for a residential mortgage loan.
- Cash income
- Full-Time income
- Part-Time income
- Self-employed income
- Asset income
- Social security income
- Pension income
Definition Of Qualified Income By Lenders
In the following sections, we will be discussing and covering the various types of incomes borrowers may have. We will discuss how mortgage lenders view the different types of income when qualifying for a mortgage.
Cash Income By Borrowers
Cash income cannot be used under any circumstances unless it is declared on income tax returns for the past two consecutive years. Cash and undocumented income are worthless in the mortgage world. Many folks in the restaurant and hospitality business do get legitimate cash gratuities. However, that type of income cannot be used as income for mortgage loan qualifications
W2 Full-Time Income
W2 income is the best source of income that is acceptable. Borrowers who are full-time wage earners with full-time income get W2’s at the end of the year. Two years worth of W2’s and the most 30 days recent paycheck stubs is what most mortgage lenders will use to qualify income for mortgage loan qualification purposes
Self-Employment Income
Self-employment income can be used for mortgage loan qualifications. However, the lender needs at least a two-year tax history on self-employment income. Those who write many items and have negative income, will not qualify for a mortgage loan. Many self-employed folks get a salary or hourly wage from their company and give themselves a paycheck every week. They get W2’s at the end of the year like working as an employee for a company. In cases like that, they can qualify their W2 income to qualify for a mortgage loan but need to own less than 25% of the company. Self-employed borrowers who own 25% or more of their business the underwriter will need the business tax returns as well. Taking huge losses on their company tax returns and giving themselves a salary will not work.
Asset-Based Mortgages: Income Derived From Assets For High Net Worth Borrowers
Borrowers who do not have a job and the only income is from their investments, we have mortgage loan programs that are called Asset Depletion Mortgage Programs. Borrowers who have a substantial investment account whether it is cash, securities, or retirement funds, can take 5% of their assets and use that as their annual income. For example, for borrowers who have a $1,000,000 securities investment account and have no other income, we can take 5% of the $1,000,000 which is $50,000, and use that annual income.
Social Security Income
Social security income can be used as income and in most cases, Social security income can be grossed up by 15%. For example, if a borrower has a net social security income of $1,000, their social security income can be grossed up to $1,150.
Qualifying For A Mortgage With Pension Income
Pension income can also be grossed up by 15% like social security income if it is not taxed.
Bank Statement Mortgage Loans
The days of no documentation mortgages and stated income mortgages were dormant since the real estate market crash but is not back. NON-QM loans and Bank Statement Mortgage Loans for self-employed borrowers is one of our most popular loan programs at Gustan Cho Associates. NON-QM Loan is a large part of our business.
Non-QM Mortgages One Day Out of Bankruptcy and Foreclosure
There is no waiting period after bankruptcy and/or foreclosure with NON-QM loans. Bank Statement Mortgage Loans For Self Employed Borrowers is very popular for business owners or self-employed borrowers who take substantial deductions on their tax returns. Either business or personal bank statements can be used for our bank statement mortgage loan program. 24 months of bank statement deposits are averaged to derive income. 100% of deposits are used if personal bank statements are used. 50% of deposits are averaged for the past 24 months if business bank statements are used.
Importance Of Qualified Income
The main reason why income is so important is due to the fact that the lender needs to be convinced that the borrower has the ability to repay their mortgage loan. Lenders want to make sure that borrowers can make their monthly mortgage payments and not default. I have seen many cases where borrowers have a successful business, tons of assets and cash, credit scores over 800, and then get denied for a mortgage loan due to the fact that they had substantial losses on tax returns. Bank Statement Mortgage Loans is now an option for self-employed borrowers. However, I can get mortgage loan borrowers with credit scores as low as 500 FICO with open collections, late payments, prior bankruptcy, prior foreclosure, judgments, and charge-offs approved for a mortgage loan. This holds true as long as they have a documented income that can be verified by the IRS. Home Buyers looking to get qualified with a mortgage company licensed in 48 states with no lender overlays please contact us at 1-800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays. No overlays on FHA, VA, USDA, and Conventional Loans. Gustan Cho Associates also has dozens of non-QM and alternative mortgage loan programs.
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