While it’s true that most people know how much mortgage they can afford based on their monthly budget, there are times where the manner in how the income is generated may make it difficult to qualify for a loan.
An experienced loan consultant will be able to help you get the most out of your income, whether it be overtime, bonus, tips, or commissions. The best way to do this is by demonstrating a history of consistent earnings over the last two years.
Many self employed borrowers run into the problem of difficulty proving income. There are many different programs available for borrowers with difficult to prove income. There are stated loan programs where the income is not verified, there is also programs that use bank statements as a source to prove income. All have there drawbacks but your mortgage broker should explain to you the best mortgage loan program for your situation.
Consumers can have a hard time documenting or using income that is from commissions, bonuses or overtime sometimes. If you are considering switching jobs from salary or hourly to a commission position you may want to hold off until you obtain your mortgage loan. Without a recent history of being in a commission job a lender will usually not permit the commission income to be used for qualifying purposes on a mortgage. The same goes for bonuses and OT. You need to be able to show a history of receiving this type of income for it to be included for qualifying purposes. Consult with a mortgage broker if you have questions about your income situation and what would be best for you to do.
If you are on fixed income, such as social security or disability, lenders can use a copy of the yearly award letter, and if you income is sporadic or suspended a letter of explanation can be required.
If you are going to change employers and have a loan in process, be sure to obtain an offer letter stating your proposed compensation package. This will help you qualify for your loan.
Often lenders want a two year history to give you credit for any type of income. For example, if you have a part time job but have only had it for a year and a half, some lenders may not count that. The best thing you can do is to tell your mortgage advisor about all types of income you have so that he or she can match you to the best lender for your situation.