By Tristan Hunt
When you apply for a refinance, debt consolidation or purchase
mortgage, one of the most important factors in qualifying for
the loan is your income. That may not seem like much of a
surprise, but you may be surprised at all of the different
your income can be calculated based on how well you can
it, and how much this can affect your loan process. Get a leg
on the loan officer and learn how to determine your income
Your lender looks at your income on the basis of how well you
can document it, and will allow you to borrow more money at
lower rates the more you can document your income. If you have
been in your job for a while and have years of W2 statements,
IRS filings, and bank statements you probably fall into the
Full Documentation or “Full Docs” basket. Typically you can
borrow the most money as a percentage of the property’s value
with a full doc income verification.
If you are on a salary and you get two checks a month, take
gross amount before taxes on your check and multiply by 2.
That’s it, that’s your income (of course you’ll need to
a little bit more documentation to the lender!).
If you get paid once every two weeks you can multiply the
amount before taxes on your check by 26 (as there are 26 pay
periods in a year) and then divide by 12, the number of months
in the year.
Hourly employees should multiply their hourly pay by 173 to
their monthly pay, unless of course you earn substantial
overtime or commissions.
In the event you earn substantial overtime or
commissions/bonuses, you will have to pull out your W2s from
the last few years and average them, usually just the past two
years are used. So add up all sources of documented income for
each year and divide by 24.
Self-employed / 1099 individuals should pull out Schedule C of
their last two tax returns, add up the Profit line (which
indicates how much money you told the IRS you made) for both
years and divide by 24.
If you earn money from rental of a property or any part
thereof, you must have a legal rental contract and necessary
local approvals to rent the property just to include the
income at all, and you will only be able to use a portion of
this rental income because lenders will assume that there is
some risk of vacancy in the future.
If you cannot fully document and verify your income or the
of it comes from commissions, bonuses or self-employment you
be able to apply on the basis of “Stated Income”, where if you
have a sufficiently high credit score (in most case 620 or
better but in special cases as low as 580) you are allowed to
simply state to the lender what your income is. Stated income
loan programs generally reduce the amount of money you can
borrow in a cash out refinance, debt consolidation or purchase
loan, and people who are on a fixed income such as social
security or pension are not eligible for stated income
programs. There are also a variety of limited document
and even no document or “no docs” mortgage programs available
for people with good credit and fixed incomes who need to
borrow less than 70% of the value of their property.
About The Author: Tristan Hunt is a seasoned financial
professional with a wealth of experience in the mortgage &
wealth management industries. Visit Tristan and the whole
RefinanceOne Mortgage team at www.RefinanceOne.net for
advice about refinancing mortgages, debt consolidation,
investor loans for real estate or buying a house with a home