Since the big changes in the tightening of the credit markets about 2 years ago, income has become extremely important in getting qualified for a FHA Loan or any other type of mortgage loan. Income now has to be fully documented and it will be examined very closely by the underwriter when you apply for a FHA Loan or conventional loan. The following are some important things to know about how underwriters will analyze your income:
Self-employed or commission income
The underwriter will require your last 2 years of tax returns all schedules. This includes corporate returns and K1′s if you have them. The underwriter will then average the last 2 years of your NET income after your writ-off’s. Remember your GROSS income does not matter; they are looking at your NET income. There are some write-off such as depreciation and business use of home that can be added back. If you are paid commission and work for a company, the underwriter will also look for any unreimbursed business expenses appearing on your returns (2106) and deduct those from your income. If your income is declining, the underwriter may only take you latest year income and not average. Contact me for more details or if you would like me to analyze your returns to calculate your income.
Bonus, overtime income, tips
You have to document you have received bonus, tips and overtime for 24 months and the underwriter will average this. If you have received your bonus for only one year for example, it cannot be counted. Tips have to appear on your income documentation or they cannot be counted. Only your base salary can be.
Employees paid hourly
If you are paid hourly and your income fluctuates. The underwriter may take a 24 month average of your income. They will do this by looking at your year-to-date income and then you’re prior W-2′s.
Part-time jobs, 2nd jobs and seasonal
You can use this income to qualify as long as you have a 2 year history that you can document of receiving this income.
Social security income, child support
This income can be used and since it is not taxed we are allowed to “gross it up” by multiplying it by 125%. So if you have $1,800 in social security income, it can be multiplied by 125% and we can use $2,250.
There are many other types of income scenarios not mentioned here, so please call me at 858-922-7899 if you have any questions or email me at homeloan8@gmail.com.
Best Regards,
Rob Chomentowski
Sr. Loan Officer (and FHA Loan specialist)
858-922-7899
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