Loan Prequalification – Income

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blog-author-clayjeffreys3

Today is the third part of a four part series on the prequalification process. We started with credit scores, continued on to down payments, and today will focus on income. Generally speaking, I’ll divide income into three types – W-2 salaried employee, all other employment income, and other. We’ll start with the easy one.

W-2 salaried employees only need to provide pay stubs covering a 30 day period to qualify for a loan. Even if you just changed to a new job, as long as a 2 year continuous work history is established AND you have 30 days of pay stubs from the new job, you can qualify for the loan. Note that the loan process can start without the 30 days of pay stubs of pay stubs from the new job. Until the pay stub is available, an offer letter can be used for the initial underwriting of the loan.

What about “all other employment” income? Maybe the easiest way to separate the two is this… if you are a W-2 salaried employee working for a non-family member, 30 days of pay stubs are needed. If income from your job comes from anything else, chances are tax returns may be required. Examples would include W-2 employees who are employed by family member, rely on commission, or bonuses. The “all other” category would also include 1099 contract employees, full commission income, and self-employed borrowers. When tax returns are required, with today’s underwriting guidelines, you could not use year to date income to buy a home. The income that can be used is the amount filed on previous years tax returns. Since we are 2014, the tax returns for the years 2013 and 2012 could be used. In order to use income from 2014, those returns will need to be filed (meaning the earliest 2014 income can be used is the Spring of 2015).

The “other” category would include non-employment income such as social security, child support, alimony, investment income, retirement income, pensions, etc. Each of these are underwritten with different guidelines. Some of these, such as investment and retirement income, could have their own loan program. When planning to use income from a source other than current employment, definitely let your mortgage professional know.

I would be a great resource for the home buyer who is using income outside of the W-2 salaried category. For years, I would pre-underwrite my loan files prior to submitting them to underwriting. I know the differences between using investment income for buying a home versus the amount of investment assets that can be used for reserves. By knowing specifically what to look for when reviewing tax returns, bank statements, divorce settlements, etc., we should know prior to underwriting if there could be a problem with the loan. If you are buying in Georgia, contact me today to get going!

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One Response to “Loan Prequalification – Income”

  1. Loan Prequalification – Collateral | The Mortgage Blog Says:

    […] Professional, Honest Mortgage Advice from Dunwoody Mortgage Services « Loan Prequalification – Income […]

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