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.

What Is Qualified Income In Mortgage Qualification Underwriting Guidelines

There are many sources that can be used for qualified income in mortgage qualification:

Examples are the following:

• social security income
• pension income
• part-time income
• bonus income
• seasonal income
• child support
• royalty income
• other sources of qualified income in mortgage qualification

Gaps & Extended Periods Of Unemployment

Borrowers who have been unemployed for 6 months or less have no waiting period to qualify for a mortgage as long as they have a new full-time job.

• Borrowers do not have to be with the same place of employment in the past two years
• Borrowers do need an overall two-year employment history
• Borrowers can have multiple employers in the past two years
• Borrowers can have gaps in employment and qualify for a mortgage loan
• Borrowers who started a new job with a new employer, will qualify for a new mortgage by providing a recent paycheck stub and offer letter of employment
• Lenders can get a verification of employment from the human resources department stating that the chances of future employment and the likelihood that the employee will be employed for the next three years are good

Borrowers who have been unemployed for more than six months need to be on the new job for at least six months before they can qualify for a mortgage loan.

Part-Time & Bonus Income

Part-time and bonus income can be used as an additional monthly income if and only if the mortgage loan borrower has been receiving part-time income and/or bonus income for the past 24 consecutive months. Part-time and/or bonus income that is not quite 24 months might be used if the mortgage loan borrower can get a letter from human resources stating that the borrower’s part-time position is likely to be promising for the next three years.

Many human resources departments will be hesitant in stating such verbiage on verification of employment.

Child Support, Royalty Income, And Other Non-Traditional Income

Child support income, alimony income, royalty income, and other non-traditional income can be used as qualified income in mortgage qualification.

• Other income such as monthly subsidies from lawsuits can be used as additional monthly income in mortgage qualification as long as it will continue for the next three years
• Proof and letters of verification will be required

Qualified Income In Mortgage Qualification Underwriting Guidelines On Social Security, Pension And Disability Income

Social security income and pension income can be used for income in mortgage qualification. Social security income is normally grossed up by 15% on FHA Loans. Conventional Loans allow 25% grossing up of social security income. For example, if the borrower’s social security income is only $1,000 per month, that income can be grossed up by 15% to $1,150 and be used as qualified income in mortgage qualification purposes on FHA Loans. If pension income is not taxed, your pension income can be grossed up by 15% as well and used as qualified income in mortgage qualification. Permanent disability income can also be used and grossed up by 15%.

Mortgage Borrowers who have non-traditional types of income and need to qualify with a direct lender with no lender overlays, contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.

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.