So what do you need in order to get that perfect pre-qualification with regard to your income? If you get this right up front for calculations plus documentation, you will be front and center for faster approval. This is why we are here with mortgage income analysis explained for you today.
Let’s Get To It…
Let’s break it down into what type of income you receive: It normal procedure that 2 years of stable employment be verified. However, if the income appears consistent and stable and has been for the past 12 months, a shorter time may be reviewed. *Most lenders use Desktop Underwriter (Fannie Mae) or Loan Prospector for analysis (Freddie Mac) as they normally pool their loans for sale to either GSE. These underwriting tools will give the lender the exact documentation needed to get to an approved status.
- Salary– for instance $80,000 yearly. You will provide current paystubs for at least one month, and the latest year’s W-2, possible W-2 for two years. Normally however you are paid on your paystub is how your income will be calculated.
If paid monthly the income would be $6,666.67. If you are paid bi-weekly, for an 80K year salary your paystub will more than likely show that you make $3076.93, X 26 = 80,000 rounded. If you are paid by-monthly the pay period will show $3,333.33 x 24 = 80,000 rounded. Weekly would be $1538.46.
If paid hourly that way would be the hourly rate x average number of hours, divided by 12 or 2,080 hours if worked 40 hrs weekly consistently.
If a person is paid $10 x 32 hours weekly the income would be $1386.67 monthly income. It depends upon the average hours worked.
Types of Income For Mortgage Analysis Income Explained
- Commission Income – If you receive a base salary with commission, it will be figured the same method as above for base pay. Commission income will be reviewed normally for the past 24 months. However, depending upon the conclusive application package (risk features, etc.) commission income can be used between 12 to 24 months. Normally paystubs plus W2 for 1 to 2 years.
The commission income is averaged for the length of time verified, must be stable and continuation is likely. The calculation can be something like this: Paystubs/W-2s show a consistent commission of $12,000 annually. The calculation depended upon how you are paid on your paystubs. Bi-weekly, bi-monthly, or monthly. If the paystub(s) you submit indicates you are paid $461.54 bi-weekly, then that is 461.54 x 26, bi-monthly 24 = $500 or monthly, $1000.
- Bonus and Overtime Income are figured the same as above. Normally a two-year history is required, however, less may be applicable if the entire documentation indicates it is stable and it will continue. It all depends upon the average income and how you are paid.
If your overtime is inconsistent from month to month or from the previous year, it may be average for the prior year plus year to date over time. **note Same for bonus and even commission.
No less than 12 months of history must be provided or calculated. It will depend upon documentation and credit file.
- Secondary Income – Second Job… Usually, a two-year history is recommended for secondary income. However, if the applicant has worked less than two years and it is conceivable that it will continue, it may be used as long as the documentation is there. If the applicant has worked 2 different jobs in the past year per investor, it may be used as long as the income average has been received consistently.
What you need to know about Self-Employment Income Analysis
- Rental Income – you will need to submit the 1040s for length and expenses.
- Veterans/Military Income- sometimes veterans have other income and a full verification is needed.
Documentation Requirements
- 2 years W-2 * may be less with automated underwriting systems being used
- 1 full month of paystubs *more could be needed if income is from a varied source, etc.
- Employment Verification – *usually a full VOE is ordered when there is base pay, plus, bonus, commission, or overtime. Verbal verification to make sure the applicant is still gainfully employed at closing.
- 1040’s for the past 24 months- when there is a need to verify if there are expenses (2106), etc. and if the applicant is self-employed.
As always stated here on Personal Finance Post- we are giving you the most current information that is available. This information is what is acceptable through the agencies. Your lender may or may not ask for more or less documentation. It depends upon their own unique guidelines.
Mortgage lending has changed over the years, especially during the Coronavirus pandemic. Lenders will try to protect their bottom line and liquidity. If they make mortgage loans that do not perform adequately, it will hinder their further service to the consumer.
KNOW BEFORE YOU GO…
Be prepared with your needed documentation and it will help your application get approved faster. We hope this article on Mortgage Income Analysis Explained is helpful.
