Receiving mortgage loan requires the borrower (you) to answer many questions. In most cases, in addition to checking your credit history, credit rating and current debts, your mortgage lender will want to know how much income you have, how stable it is, and where it comes from.
Here are six questions you can count on mortgage lender ask about your income. Preparing for these questions ahead of time will help you go through the mortgage process and, ultimately, move into your new home much faster.
1. How long have you received your current salary?
This big bonus won’t help if you haven’t received the same amount in the past two years. The lender will look at your W-2s over the past two years and then look at your pay slip to see what you’ve earned so far this year. If you are calling to find out what you can qualify for, it would be best to have this information on hand. So you don’t make a home offer that your income doesn’t support.
2. How often do you get paid?
Are you getting paid every week, every two weeks, twice a month, or monthly? This may seem like a minor point, but here’s an example of why this is so important:
Let’s say you get paid $ 2,000 every second Friday, but you say you make “about $ 4,000 a month.” If the lender mistakenly assumes that you are paid twice a month, then mortgage underwriter will use $ 48,000 per year to qualify you for a home loan.
But if in fact you get paid biweekly, you are probably eligible for a higher monthly payment. The smaller figure cuts your monthly income to about $ 300 because when you get paid every two weeks, you get 26 salaries a year (compared to 24 salaries a year when you get paid twice a month).
The difference is important. Depending on the mortgage interest ratethat extra $ 4,000 a year can help you get a fixed rate mortgage that’s $ 20,000 more.
Another way to look at this: Higher income can help you get another $ 100 per month in your monthly mortgage payment. This may be enough to cover home ownership costsfor example yours:
3. What to do with the ups and downs?
If you have experienced great drop In terms of last year’s income, the underwriter can use the shorter of two years to figure out how much mortgage you can qualify for.
Is your income skyrocketing from last year to this year due to high commissions? It’s great, but when there is significant increase, an underwriter can take an average of two years.
If you can show the changes in your basic payfor example, about raising wages, you can immediately use a higher income. Also, if you have experienced a change in income of more than 10% per year from last year, expect the loan officer to ask for a letter from your employer’s HR department explaining the reason for the change, especially if it was related to a promotion or new position. in company.
4. Are you new to work?
As long as you get paid a full-time salary or hourly rate, getting new to work isn’t all that important. Do not think that you will not be able to get a loan because you have started a new job; it just isn’t. But depending on your situation, you may need to provide additional information to the underwriter.
If you recently graduated from college, you may be asked to show a copy of your transcript to make sure your degree is related to your new job.
If you’ve recently started a new job, it might be easiest to wait for your first paycheck before applying for loan approval, and in some cases, your first two paychecks. In some cases, the lender may allow you to close the loan without this first paycheck, but you will need a fully completed employment contract and possibly some other documentation.
Changing careers can be a little tricky, but if you can explain the nature of the job and how it relates to your skill set, and a new career involves a full-time salary or hourly pay, you can probably qualify. under a mortgage. The lender is committed to income stability. So if you used to work as an accountant and now make a living as a beautician, this could be a red flag. A mortgage lender may need a period of stability before approving your loan application.
5. Did you receive a commission or were you reimbursed?
If you earn a commission, you will need to provide complete federal tax returns for two years, including all tables, as part of the loan application. The lender will seek all unreimbursed business expenses. They will be deducted from your gross commission to determine the net commission. The loan officer will then take the average net monthly commission over the past two years.
The section on the tax return that will be carefully scrutinized is expenses 2106. During taxation, these are expenses that reduce your taxable income, which is good news.
However, when applying for a mortgage, these costs are essentially treated as debt. If you write off $ 12,000 per year for unreimbursed expenses for food, entertainment, mileage, fees, subscriptions, equipment, and more, then guess what? This is a commitment to pay $ 1,000 per month that will be counted towards your income.
6. Where does this money come from?
Income does not have to come from salary. You can use other types of income to qualify for a mortgage. Here are some examples:
- Support for children
- Social Security
- Certain types of disabilities
- Income from investments
- Rental income
In all cases, you need to document the income and source.
You will also need to document any large and unusual recent deposits in your bank account. However, it does not need to be verified as income. If it was a gift to help you buy a home, the donor will need to write a letter. If these were funds that you transferred from another account, you will need to show the corresponding statements.
In addition to answering the questions above, you will want to keep the following points in mind.
Change of job in the process of obtaining a loan
If you are thinking of changing jobs in the middle of the mortgage process, be sure to let your mortgage specialist know about it. Lenders will check your employment status at the beginning of the process, in the middle and on the day you close to home… So last-minute work changes could jeopardize mortgage approval.
Applying with a joint applicant to claim more
If you do not have sufficient income on your own, some loan programs allow you to add income to a relative to help you qualify even if the person does not plan to live in the home. This is a great way for parents to help an adult child buy their first home. However, this family member will be on the hook for the mortgage and it will be considered a new payment on their credit report, regardless of who makes the payments.
Eligibility for a mortgage without income documentation
Remember that questions about your income depend on the loan program you are applying for. Some types of mortgages, for example mortgage loan with declared income,style = “text decoration: underline”> may not require income documents. If you think you are having trouble answering all of the above questions, or if you prefer to apply for a mortgage in a different way, you can talk to at least one potential lender. The right lender can help you figure out which loan option is right for your situation.
Preparation is the key to success
One last thing about income: you only get one chance to make a first impression. It may seem like mortgage underwriters are looking for reasons to refuse loans, but the truth is, they like having all the facts about how much you make, with details and explanations to address any changes. The extra work required to provide all this information in advance often means the difference between painless mortgage approval and the nightmare of document retrieval.