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Mortgage & Refinance Tips: Determining Your Income
By: Tristan Hunt iSnare Expert Author
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 ways your income can be calculated based on how well you can document
it, and how much this can affect your loan process. Get a leg up on the loan
officer and learn how to determine your income yourself.
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 the gross amount
before taxes on your check and multiply by 2. That’s it, that’s your income (of
course you’ll need to present a little bit more documentation to the lender!).
If you get paid once every two weeks you can multiply the gross 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 get 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 rental 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 bulk of it comes from
commissions, bonuses or self-employment you may 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 programs 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 industry, advising clients on
debt consolidation, refinancing &
investor loans. Website: http://www.RefinanceOne.net |
