HOW THE UNDERWRITER WILL CALCULATE YOUR INCOME
Below represents the most common employment and income scenarios:
Salaried - Will use CURRENT gross monthly income, and typically will require a full two-year employment history. Exceptions to the full two-year history requirement:
• New to the Workforce: You recently graduated or completed training and are now employed in the same field of study or training.
• Gap of Employment Less than Six Months: Gaps or taking time off between employers is permitted with a previous two year history and at least one full month on the new job, in the same line of work, documented with paystubs prior to loan closing.
• Gap of Employment Greater than Six Months: Okay if you have two years of previous employment history and have been currently employed for at least six months, in the same line of work.
The following income types require a full two-year history and are typically calculated using a 24 month plus year to date average:
• Self Employed: Income is taken from reported earnings from the previous two years’ filed tax returns, but some expenses can be added back to income, such as depreciation and business use of the home. AUS can allow using only most recent year’s tax returns.
• Contract Employee/Wages reported on 1099: Same as self-employed above.
• Hourly: Will use current hourly rate x average hours worked. Will look at average hours worked in previous year to see if current average #hours claimed are supported.
• Bonuses: If declining from prior year, use recent year plus year to date average
• Overtime: If declining from prior year, use recent year plus year to date average
• Tips: Two years plus year to date average
• Commission: If declining from prior year, use recent year plus year to date average
• Auto Allowance: Will use current monthly amount if not deducted on 1040s
• Seasonal Income: Must show a reasonable expectation of continuance
Social Security Income: The gross monthly amount is used. If it’s paid on behalf of another person (spouse, dependent) it must continue for three years from the date of loan closing.
Pension/Retirement Income: Uses currently gross monthly benefit
Alimony/Child Support: Requires a three-year history of receipt, and must continue for three years from the date of loan closing.
Rental Income: If the property has been rented for two years or more, use the two-year average reported on schedule E. Depreciation, taxes and insurance can be added to the net profit or loss. If newly rented, 75% of the lease agreement can be used. NOTE: For both types of rental calculations you must subtract that mortgage, and monthly hazard insurance and taxes, and any HOA dues. This can also can result in a loss which will be added to your monthly debts when qualifying.