| When applying for a loan, one of the most | | | | together and divide by 24. Your monthly income |
| important aspects a lender must determine is | | | | calculation should be pretty close to what a lender |
| how much money you make. It sounds easy | | | | would come up with. |
| enough. But you would be surprised how | | | | If you are self employed and/or receive 1099 |
| differently you and a lender may view your | | | | income, than most likely you will need to come up |
| paycheck. | | | | with 2 years worth of complete tax returns |
| A mortgage lender will only count income they | | | | (including schedule C, K-1's and the like) and have |
| can document with paperwork. If you are a | | | | been at the job for two years. A lender is going |
| salaried employee that has been at your job ten | | | | to review all the schedules and deductions when |
| years and you don't count any overtime or bonus | | | | determining an income. Oftentimes, a borrower |
| income, not a problem. It's very easy to figure | | | | comes up sadly short from what he states as |
| out how much money a lender will count as your | | | | monthly income to a lender after the lender puts |
| monthly income. Just add up a month's worth of | | | | it to paper. Or a borrower may be earning more |
| pay stubs, using your gross income, not what | | | | than he can currently prove. I have a client who is |
| Uncle Sam leaves you. If you get paid every two | | | | earning more in his third year of self employment |
| weeks, multiply your paycheck by 26 and divide | | | | than he did in year one and two. Unfortunately, he |
| by 12. If you get paid twice a month, multiply by | | | | has to wait till his 2007 taxes are done in January |
| 2. | | | | or count a lower monthly income based on 2005 |
| If you are an hourly employee who works 40 | | | | 2006 tax returns to do his mortgage transaction. |
| hours every week and gets paid for vacation and | | | | Of course, he would qualify for a stated income |
| holidays, take your hourly rate, multiply it by 2080 | | | | loan, but his interest rate is higher. |
| and divide by 12. Again, it seems fairly straight | | | | So, take a look at your income from a lender's |
| forward and simple. | | | | perspective when trying to figure out what you |
| If you earn overtime, income or commission, it | | | | can afford. Even if you are a purchasing a home |
| gets trickier. You don't get to count what you are | | | | and your terrific credit score and job history don't |
| currently earning unless you can show you've | | | | require your lender to document your income, |
| been earning it consistently. You can get out your | | | | you should still be able to determine a true |
| tax returns and average your monthly income | | | | monthly income for yourself. The above scenarios |
| over two years. Sometimes, a written verification | | | | cover most loan transactions, but there are |
| from an employer giving a history of this | | | | mitigating factors that could change the scenario |
| additional type of income may be required. This | | | | once the loan is in underwriting. However, these |
| rule of thumb can work for those employed part | | | | guidelines are a good place to start, and it can |
| time or for nurses, teachers or construction | | | | save you a lot of heartache in the long run. |
| workers. Take two years worth of income, add it | | | | |