Frustrated Borrowers - Income

I had a client who called me last week extremely frustrated with the loan underwriting process. My first response: get in line! As I wrote last week, things are getting tougher by the week. Loans which should have easily passed through underwriting in a few days are now taking weeks. In order to ease the process, I have been advising my clients to spend a little more time lining things up before we submit a file to an Underwriter.

With that in mind, I figured I would take a few posts and update you on some of the things to keep in mind when preparing to apply for a mortgage loan. Today, let’s tackle income.

Underwriters want to make sure you can make your mortgage payments. Essential in that process is your ability to earn money. An underwriter is looking to see that you have a job, that your job is stable, and that you make enough money to make all your payments.

To ensure employment you will provide a minimum of 30 days worth of pay stubs. These should include Year to Date earnings. The lender is concerned mostly with your Gross earnings; however they will be interested in your take home pay as well. If you have commission or bonus pay that makes up a significant amount of your income then expect additional paperwork. To calculate commission or bonus income an Underwriter will want to see your tax returns for the past 2 years. They will take the 2 year average of your “non-base” pay and add that to your gross base-pay.

To determine stability you will be asked to submit W-2’s from the past year, and in some cases, particularly if you have changed jobs multiple times in the past 2 years they may want 2 years worth of W-2’s. The purpose is to verify that you have been employed, and that your income has not taken a significant decline. For a self employed borrower you will need to submit your complete tax returns for the previous 2 years.

Lenders want to ensure that you are not paying too much for your house. That typically means that less than 40% of your monthly gross earnings should go to your house payment. While it is possible to receive an approval when you spend 50% of your earning on your home, it is becoming increasingly difficult for lenders to justify lending to someone who is literally living paycheck to paycheck.

By understanding what Lenders are looking for it is easier to prepare for an easier loan process. As always, if you have specific questions about your situation, feel free to email me at jayhart@cottonwoodmtg.com or call me at 801-256-0904.