This guide covers how do underwriters calculate monthly income of borrowers. The way how do underwriters calculate monthly Income Of Borrowers is with documented qualified income. There are strict mortgage regulations on how do underwriters calculate monthly income of borrowers on government and conventional loans.
Days of stated income home loans have long passed but have now returned on the non-QM loan programs. However, non-QM loans are alternative non-conforming loan programs that are becoming very popular.
Only qualified income will count to be used when calculating debt-to-income ratios. Undocumented cash income cannot be counted. Only adjusted gross income after unreimbursed business expenses can be used. Due to only adjusted gross income being used as qualified income, business owners and self-employed borrowers often had trouble qualifying for a mortgage. NON-QM Loans and Bank Statement Mortgage Loans for self-employed borrowers are back. Gustan Cho Associates is a national mortgage company licensed in multiple states with no overlays on government and conventional loans. However, the ways on How Do underwriters calculate monthly income of borrowers are pretty much the same for all lenders underwriting FHA, VA, USDA, and Conventional loans.
How Do Underwriters Calculate Monthly Income: The Importance Of Qualified Income
Monthly income will be the most important determinant, along with your credit scores, determining how much of a home you can afford. It is not how much you make a month but how much monthly income can be verified by the mortgage underwriter.
All monthly income in the mortgage approval process needs to be verified. Cash income cannot be used for monthly income qualification purposes. Declining income is a bad sign for underwriters and may not be eligible as qualified income.
Mortgage underwriters need to determine and use their discretion that the income used as qualified income is likely to continue for the next three years. Other income, such as part-time, bonus, and overtime, can be used as qualified income as long as the borrowers have a two-year history and the income is likely to continue.
How Do Underwriters Calculate Monthly Income of Hourly and Salaried Wage Earners
If a borrower is a full-time hourly employee, the way mortgage underwriters calculate is by taking the amount of the hourly rate and multiplying it by 40 hours. Then multiply that figure by 52 weeks. Then divide it by 12 months to get the monthly gross income. Do not count overtime income or bonuses. Overtime income and bonus income are different subject matters.
There are other ways of calculating bonuses, overtime, part-time, and other income in monthly income qualifications. The borrower needs two years of seasoning to use a second full-time job, bonus, overtime, part-time, or other income. The other income cannot be declining.
The mortgage underwriter needs to make a call and has the discretion on whether the income will likely continue for the next three years. Lenders must ensure the borrowers will remain employed and pay their new home mortgage payment without any stress or financial difficulty.
How Do Underwriters Calculate Monthly Income of Salary Wage Earners
If you are an employee who is on salary, this is how you calculate your monthly income for mortgage calculation. If the mortgage loan borrower gets their wages twice a month, the paycheck is multiplied by 2, yielding the monthly income. If the salaried employee is paid every two weeks, the paycheck must be multiplied by 26 weeks and then divided by 12 months to yield the monthly gross income to qualify for the mortgage loan.
How Do Underwriters Calculate Monthly Income on Overtime, Bonus, Part-Time, and Commission Income
Other income, such as overtime, bonus, part-time, and commission income, is more complicated to qualify for. The mortgage loan originator must ensure he or she qualifies it the same way the mortgage underwriter will. Mortgage underwriters will not count overtime or other income unless borrowers have a two-year history. The other income cannot be declining or inconsistent. Overtime income, part-time income, bonus income, or commission income will have the likelihood of continuing for the next three years.
How Do Underwriters Calculate Monthly Income on Overtime and Other Income Guidelines
Nobody can guarantee that borrowers’ overtime and other income will continue. What the mortgage underwriter is going to request is a verification of employment from Human Resources.
On the VOE, it will request to Human Resources representative to state the overtime. It will also ask if other income is likely to continue, and the likelihood it will continue for the next three years is very likely.
If the HR spokesperson is unwilling to state that verbiage, overtime, and other income cannot be used as additional income in the monthly income qualification. If that overtime income is allowed, then it is calculated to take the sum of the two years of overtime income and divide it by 24 months. If the overtime or other income is last in the most recent year than the previous year, then the most current year overtime income or other income is only used, and it is divided by 12 months to determine the monthly income.
How To Calculate Monthly Income For Self-Employed Mortgage Borrowers
If the borrower is self-employed or a 1099 wage earner, two years of tax returns and income as 1099 is mandatory. Lenders will take the adjusted income after all deductions that filers report to the Internal Revenue Service. Lenders will go off the Schedule C of the tax returns from the previous two years.
Lenders will take borrowers’ adjusted annual income to qualify for income. The sum of the two years’ income from borrowers’ tax returns is added and divided by 24 months to determine the monthly income.
If the income from the most recent tax returns is lower than the reported income from the previous year, then the income of the most current year tax returns divided by 12 months will be used. Borrowers who wrote off depreciation can add depreciation to the tax returns and income.
W-2 Only Income Mortgage Loan Program
Gustan Cho Associates offers the W-2 Only Income Mortgage Loan Program. Gustan Cho Associates does not require income tax returns by borrowers if the Automated Underwriting System (AUS) Findings do not require it. W-2 Only Income Mortgages is very popular for W-2 Only Borrowers at Gustan Cho Associates. Homebuyers who need to qualify for home loans with a mortgage company licensed in multiple states with no overlays on government and conventional loans, please get in touch with us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.
