Helpful Mortgage Information

How Lenders Determine Your Income

When a loan officer pre-qualifies you, he works backwards to determine your
maximum mortgage amount. You can do the same thing. The first step is to determine your monthly income. It isn't quite as easy as it sounds. Lenders only count income they can document through paperwork. The income can be determined differently depending on how you are paid:

1. If you are a salaried employee, and don't earn bonuses, it's easy. Get out your paystub. If you get paid twice a month (24 pays per year), multiply by two.
   
   
2. If you are a salaried employee, and don't earn bonuses, but you get paid every two weeks (26 pays per year), then you multiply by 26 (the number of pay periods in a year) and divide by twelve.
   
   
3. If you are an hourly employee who works a straight forty hours a week and don't earn overtime income. Look at your paycheck, multiply your hourly rate by 2080, and then divide by twelve.
   
   
4. If you are an hourly employee who works a straight forty hours a week and you earn overtime, bonuses, or commissions --it isn't as easy. Lenders don't give you credit for what you are currently earning. They average your income from those other sources over the last two years, then add that to your regular salary or hourly monthly income. If you want a shortcut that is usually close, get out your W2 forms for the last two years. Add them together and divide by twenty-four. That is your monthly income.
   
   
5. If you are a teacher, a nurse, a seasonal employee, in construction, or earn only part-time income --you can use a shortcut, as well. Add the figures from your last two years W2's, then divide by 24. It generally gets you close.
   
   
6. If you are self-employed or receive 1099 income, then you need a two-year track record. Lenders go by what you declare to the IRS as income, since that can be documented. Since some self-employed people overstate their expenses, this may understate your income. Look at the Schedule C of your tax returns for the last two years and the number at the bottom that says "profit" is your annual income. You can add any depreciation back to that figure. The add them together and divide by twenty-four.

There are variations and exceptions (like those who own their own corporations) but the above should cover most people.

bob.bradshaw@lakewoodhome.net

Toll Free 1-800-276-8119 ext. 106
Fax 1-616-301-1445