Income types Q and A podcast

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“What does it matter how I’m paid as long as I’m getting paid?”… a common question I’ve heard before from clients. Logically, it makes a lot of sense. However, on paper when viewed by an underwriter, there are important differences. In this podcast, we aim to address those differences. Here is a brief transcript, but go here for the entire podcast.

Q: Please differentiate between W2 and 1099 income.

A: Typically, a W2 employee is a full employee of a company given a salary versus a 1099 employee where the employer doesn’t pay taxes for the employee AND 1099 employees can write off business expenses.

Q: How does an underwriter view different types of pay structures:

A: W2 salary gets the same pay regardless of world events. That means less uncertainty, and it makes an underwriter happy. For new hires, this is ideal. A new employee can qualify with 30-60 days of pay stubs after starting a new job. However, commission and bonus pay that amounts to 25% or more of one’s income will require tax returns just like a self-employed borrower.

Q: Why is that the case?

A: There is no going-forward guarantee of income. In order to get an idea of what to expect, and underwriter looks at the past two years (24 months) to get an idea of how events are likely unfold moving forward.

Q: Is there a difference between an hourly and salary employee:

A: As long as the full time hourly paid employee has guaranteed/consistent hours, it is not treated differently from a W2 salaried employee.

Q: What about overtime:

A: Treated very similar to bonus/commission. An underwriter wants to know how long a person has been earning the overtime pay AND is it likely to continue.

Q: Describe self-employed or 1099 pay qualifications:

A: Up to two years of tax returns are going to be required because, again, there is no guarantee of income and self-employed or 1099 borrowers can write off business expenses that W2 employees typically do not/cannot write off. For instance, one’s income may have been $120,000 in 2009. Come tax season, $60,000 was written off as business expenses. An underwriter interprets that as it cost the borrower $60,000 to make $120,000-meaning the actual income was $60,000.

Q: What about “other income” including social security, disability, child support, alimony, trust income, investment income, etc.:

A: They all hold one thing in common – a 3 year or more continuance will be required. How long one needs to be receiving it before applying for a mortgage depends on each individual item. Listen to the podcast for more info!

For more information on the differences between the types of income and getting qualified for a mortgage, don’t hesitate to contact me!


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