What Can Be Used As Income For a Mortgage Approval
In this blog, we will cover and discuss what can be used as income for a mortgage. Other income such as overtime, part-time, bonus, tip, or other income refers to extra income or non-traditional income that what can be used as income for a mortgage. Besides the full-time that you earn, non-traditional income can be sued as income for a mortgage to supplement your household income.
What Can Be Used As Income For a Mortgage DTI Calculations?
Wage earners may not have a full-time income but rather have one or more part-time incomes or passive incomes. In this blog, we will cover and discuss what can be used as income for a mortgage loan approval. We will cover how mortgage lenders calculate what can be used as income for a mortgage loan approval. We will also show you the stipulation on the non-traditional income that can be sued for a mortgage loan approval.
Understanding What Can Be Used as Income for Mortgage Approval
Obtaining a mortgage is a vital step toward homeownership, and one of the key factors lenders evaluate is your income. Understanding what can be used as income for mortgage approval can help you prepare a strong application. Here, we’ll explore the various types of income that lenders typically accept and the documentation required. Speak With Our Loan Officer for Mortgage Loans
Types of Income Considered for Mortgage Approval
- Salary/Wages
- What it is: Regular income from employment.
- Documentation: Recent pay stubs (usually covering the last 30 days), W-2 forms for the past two years, and an employment verification letter or direct confirmation with the employer.
- Bonuses and Overtime
- What it is: Additional earnings beyond regular wages.
- Documentation: Consistent history of bonuses and overtime over two years, supported by pay stubs and possibly a letter from the employer confirming the likelihood of continuation.
- Self-Employment Income
- What it is: Earnings from your own business or freelance work.
- Documentation: Tax returns for the past two years, profit and loss statements, and sometimes business financial statements.
- Rental Income
- What it is: Income from investment properties.
- Documentation: Lease agreements, tax returns showing rental income, and bank statements verifying rental income deposits.
- Alimony and Child Support
- What it is: Court-ordered financial support.
- Documentation: Court orders, proof of receipt (usually for the past six to twelve months), and evidence that the payments are expected to continue for at least three years.
- Investment Income
- What it is: Income from dividends, interest, and other investments.
- Documentation: Tax returns showing investment income and current investment account statements.
- Social Security and Pension
- What it is: Retirement benefits and disability payments.
- Documentation: Award letters indicating the amount received and bank statements showing deposits.
- Seasonal or Irregular Income
- What it is: The income icon needs more yearly, such as seasonal work.
- Documentation: Documented income history over a consistent period (usually two years) and often averaged over this period.
Verification and Documentation
To ensure the reliability of the income you present, lenders require thorough documentation and verification. Here’s how they typically verify different types of income:
- Employment Income: Recent pay stubs, W-2 forms, and direct confirmation from the employer or a verification letter.
- Self-Employment Income: Tax returns, profit and loss, and business financial statements.
- Rental Income: Lease agreements, tax returns, and bank statements.
- Alimony and Child Support: Court orders and proof of receipt.
- Investment Income: Tax returns and investment account statements.
- Social Security and Pension: Award letters and bank statements.
- Seasonal or Irregular Income: Consistent documentation over two years.
Additional Considerations
Lenders may also look at other forms of income on a case-by-case basis. For instance, trust income, royalties, or income from part-time jobs may be considered if documented and verified appropriately.
Understanding what can be used as income for mortgage approval and ensuring proper documentation can significantly enhance your chances of securing a mortgage.
Each lender may have specific guidelines, so it’s essential to consult with a mortgage advisor or lender to understand their requirements. Preparing a comprehensive and well-documented application will help streamline the approval process, bringing you one step closer to owning your home.
What Can Be Used As Income For a Mortgage With Non-Traditional Wages
Non-traditional income can be used to qualify for a mortgage. Besides overtime and other wage income, passive income can also be used as qualified income to be used to qualify for a mortgage. A frequently asked question on can passive income be used to qualify for a mortgage, the answer is YES.
Click here to apply for your mortgage with us
What Can Be Used Income For a Mortgage Using Other Income Sources
There are various sources of income that can be considered as income for a mortgage. There are several alternative non-traditonal sources of income that can be used to qualify for a mortgage. The alternative sources of income that can be used to qualify for a mortgage are the following types of income listed below:
How Long Does Non-Traditional Need To Be Seasoned To Be Used As Income For a Mortgage
You can use the overtime, bonus, tip, or other forms of non-traditional income as your qualified income only if you’ve received this income for the last two years. Besides a two-year history of making overtime or other sources of non-traditional income, the income needs to likely to continue for the next three years.
Verification of Employment Guidelines For What Can Be Used As Income For a Mortgage
Lenders will do a verification of employment and other third-party background checks through Lexis Nexis or Data Verify to make sure the borrower had a two-year history of non-traditional income and the income source is likely to continue for the next three years.
How Do Mortgage Underwriters Calculate No-Traditional Income That Can Be Used For a Mortgage
It would be best if you calculated your income using the lesser of the:
-
-
- The average of your Overtime, Bonus, or Tip Income earned over a previous couple of years or, if less than a couple of years, the length of time Overtime, Bonus, or Tip Income has been acquired; or
- The average OBT Income earned over the last year.
-
Buying a home has the potential to be one of life’s most exciting experiences! However, it would help if you first qualify for a mortgage before looking for a home. To accomplish so, we’ll look at a number of other qualifying areas, including income. But what if you make a significant amount of money by working overtime? Let’s look at how overtime money can be used to assist you in the process of getting a mortgage.
HUD Income Guidelines on FHA Home Loans
According to FHA lending guidelines, the loan officer must first verify the borrower’s income before computing the debt-to-income ratio. The only income that can be verified is acceptable, so the lender must establish that the revenue is consistent, predictable, and can be relied on to continue. It is possible to consider income from a variety of sources.
What Can Be Used As Income For a Mortgage For Compensating Factors?
Additional income from Overtime, Bonuses, Part-Time or Seasonal Employment that is not shown in Effective Income can be applied as a compensating factor subject to the following requirements:
-
-
- The borrower is required to provide documentation that the Mortgagee verifies and documents that the borrower has received this income for a minimum of one year and will most likely continue. and
- If included in gross Effective Income, the income is sufficient to reduce the qualifying ratios to nothing more than 37/47.
-
For many people, overtime is a burden since it takes away from their free time. Others may see it as an opportunity to make extra money. The additional income may assist in securing approval for a property purchase and mortgage. So, let’s go over how lenders evaluate time and how you may use it to get the house you desire. Speak With Our Loan Officer for FHA Loans
How Part-Time Income and Seasonal Work Income Is Calculated By Lenders?
Some people seeking an FHA loan do seasonal work, part-time jobs, disability assistance, or other sources of non-full-time income. These employment types are acceptable as long as they can meet FHA loan requirements on overtime income. The same thing goes for overtime pay. Borrowers may discover that overtime can and is included in the debt-to-income ratio in certain scenarios.
How To Calculate Bonus Income For My Mortgage?
There has to be substantial history to count overtime, and it must be likely to continue in the foreseeable future before it can be considered income, lenders first will document the average overtime.
The necessary time depends on the loan, overtime trend, and consistency. It is also determined by the file’s general composition and pre-approval.
To compute adequate income for workers who have overtime or extra income the lender must take the average income earned over the past two years. However, if the current year’s overtime or extra income falls by 20% or greater than the previous year, the lender must use the current year’s revenue.
How is The Overtime Income Calculated When Qualifying For a Mortgage Loan?
Because this income is not easy to predict, lenders must carefully examine the borrowers earning history and calculate an average. There are other aspects that must be considered, which we’ll go over later. For now, know that you’ll have to jump through a few extra hoops if you intend to use your bonus, overtime, or commission income as payment for a mortgage. To qualify for an FHA loan, your loan officer needs to average out your last two years of income, and you need at least two years of overtime income if you wish to receive the payment as one of the qualification factors (used for calculating DTI)
The Way Mortgage Lenders Calculate Overtime Income
Paystubs can be used to figure out how much basic and extra income was earned this year. As a result of this, lenders must request the complete employer verification of employment form—boxes to fill out break down the revenue to calculate it correctly. The lender must also determine the base income. The lender may use the current hourly rate in place of averaging the base rate across time. As long as the employee has continuously worked 40 hours each week, the base computation equals the current hourly rate multiplied by 40 hours.
How Is Your Salary Income Calculated For a Mortgage
You will be required to have documentation that will provide a more accurate view of your earnings. We can calculate overtime income for qualification in several different ways. First, if history is long and continuous, without any major differences in recent years, it can be taken at face value. However, if the amount of income is not stable over the last two years, the average of the two years may need to be used to assess the qualification.
How Is Overtime Income Calculated to Estimate Monthly Payment?
To qualify for overtime, you must submit pay stubs on top of your W-2s. Your final yearly income will show on your W-2. Paystubs will show your pay stubs breakdown. This will provide your loan officer with a clearer view of how much overtime income you make. Furthermore, if you change employment, you may need to provide this information from them. Connect With Our Loan Officer for Mortgage Loans
Frequently Asked Questions (FAQs)
- What types of income do lenders consider for mortgage approval?
Lenders typically consider various types of income, including:
Salary/Wages: Regular income from employment.
Bonuses and Overtime: If consistently earned and documented.
Self-Employment Income: Verified through tax returns and financial statements.
Rental Income: From investment properties, subject to verification and potential discounting.
Alimony and Child Support: If court-ordered and documented.
Investment Income: Dividends, interest, and other regular investment returns.
Social Security and Pension: Retirement benefits, disability payments, etc. - How do lenders verify employment income?
Lenders typically require:
Recent Pay Stubs: Usually covering the last 30 days.
W-2 Forms: For the past two years.
Employment Verification: A letter from your company or direct verification with the employer. - Can self-employment income be used for mortgage approval?
Yes, self-employment income can be used, but it often requires:
Tax Returns: Typically for the past two years.
Profit and Loss Statements: Sometimes required, particularly for the current year.
Business Financial Statements: If applicable. - Is rental income considered for mortgage approval?
Yes, rental income can be considered, often requiring:
Lease Agreements: To verify the rental amount.
Tax Returns: Showing rental income.
Bank Statements: Showing rental income deposits. - Can seasonal or irregular income be used for mortgage approval?
Seasonal or irregular income can be used if:
History of Income: Documented over a consistent period (usually two years).
Average Calculation: Lenders often average the income over the past two years. - How is alimony or child support considered?
Alimony or child support can be included if:
Court Orders: Documenting the payment amounts.
Proof of Receipt: Typically for the past six to twelve months.
Continuity: Expected to continue for a significant period, usually at least three years. - What about bonuses and overtime income?
Bonuses and overtime income can be considered if:
Consistent History: Documented over a consistent period (usually two years).
Employer Verification: Sometimes required to verify the likelihood of continuation. - Can investment income be included?
Investment income can be used if:
Documented History: Usually through tax returns.
Continuity: Expected to continue, supported by investment account statements. - Are Social Security and pension incomes eligible?
Yes, these incomes are eligible and require:
Award Letters: Showing the amount received.
Bank Statements: Verifying the deposits. - Can other forms of income be considered?
Other forms of income may be considered on a case-by-case basis, often requiring thorough documentation and verification by the lender.
How Much House I Can Afford With Overtime Income?
The first step is to determine how long you will receive the overtime pay. Because overtime isn’t always guaranteed and is not included in your base salary or hourly wage, a few weeks of extra work cannot be applied as income. It will take at least a year or two of constant overtime labor to be called part of your income qualification.
Establishing this history may put off homeownership goals for a year or two if you wish to take advantage of this money to secure a better mortgage.
Consider if this timeframe is realistic for you; if your requirements push you to buy a home faster it is smart to do so. For more information, you can contact us at GCA Mortgage Group by calling us at 800-900-8569 or text us for a faster response. You can also email us at alex@gustancho.com. Our expert Loan Officers are available even during weekends and holidays!
