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Omaha NE Income

Calculating Income – Omaha NE Home Buyer’s Guide

How is income calculated on a mortgage?

Your income will determine how much home you can afford. Because of this it is important to have your income verified as early as possible in the home buying process. For a home loan, what you make and what can be used as qualifying income can be different so speaking to a mortgage loan officer early is important.

We are a local mortgage lender serving Omaha, Papillion, La Vista, Bellevue, and all of eastern Nebraska. We can help figure out the best way to structure your loan based on your verified income. 

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  • Full-time income
  • Part-time income
  • Self-employed income
  • Overtime, bonus, and commission income
  • Child support and alimony income
  • Assets as income
  • Retirement income

Full-time income

Full-time income for a mortgage does not necessarily have to be a full-time job. For a mortgage we will use your primary source of income as your full-time job even if you are working less than full-time hours. There are a few ways to calculate full-time income

Salary income

This is the easiest to verify. If you receive an annual salary we will just take that and divide it by 12. No matter your hours that is the income we will use. You do not have to be at a salaried job for two years to use the income. As long as we an show a history of employment we can use that income as early as 90 days BEFORE you start the position.*

*If we are going to use income before you start a job there are certain asset requirements that must be met. Contact us for details.

Hourly income

Per hour income is the next easiest to use on a home loan. If you are working 40 hours a week, we will just take 40×52 and divide it by 12. That will be your qualifying income. You do not have to be at an hourly job for two years to qualify. As long as we can verify hourly pay and your average hours from your employer we can close up to 90 days BEFORE you start your job (the same asset requirements as salary apply).

If your hours fluctuate we will have to get at least a one year average to get your verifiable income. If you are less than a year at your job it is still possible to verify average hours if your employer will confirm your average hours and we can show a history of similar income in a similar position.

Part-time income

Part-time income is any income you receive that is not from your primary employer. If you have a second job or side hustle we will need to show at least two years of income to use this on your loan. The reason lenders require a two year history is to show that this is a consistent job and not something you picked up to qualify for a larger house. All the same rules apply to part-time income as full-time income, but you must have two years at the job to use it.

Self-employed income

Self-employed can be a bit tricky. First you will need at least two years of self-employment to qualify (there are limited cases where one year will be accepted). We will use a two year average of your ‘Adjusted Gross Income’ to qualify. For many self-employed people with lots of write offs this does create issues. running a lot of your expenses through the business may limit how much house you can afford.

If you are currently a W2 employee and considering opening your own business, make sure you are set on where you want to live for the next few years. If not, look into purchasing a home with your W2 income before starting that new business.

Overtime, bonus, and commission income

If you are an hourly or salary employee and also receiving overtime, bonus, or commission we might be able to use it. We will use your current base income and a two year average of your overtime, bonus, or commission. If you have not been receiving these for two years we might only be able to use your base income. If you are a buyer receiving a lot of overtime, bonus, or commission it is important to talk with a loan officer as soon as possible to see if how soon you can use these as income. Better to know exactly when you can purchase using your full income before finding that dream house that is just out of reach.

Child support and alimony income

Both child support and alimony are considered income, but there are a few differences between them and regular employment. Because both of these have a set end date, we will need to show that they will continue for at least three years from the date of closing. If your alimony or child support is set to end less than 36 months we cannot be use it.

Child support and alimony must show on time payments for the last six months as well. If your ex has missed a payment in the last six months we cannot use that child support or alimony to qualify. It is important to be up front with your loan officer about the payment history when you are pre-qualified. The underwriter will verify a payment history to make sure recent payments have been made on time.

Assets as income

This is an option used by many retired buyers. If you have a lot of assets but do not have a lot of income, it is possible to use your assets as income to qualify. It usually requires quite a bit of assets to use it effectively. This is an involved process and will require a full review by a loan officer We will generally take 70% of your assets and divide it by the number of months in the loan. For $500,000 in assets we will take 70% of that ($350,000) and on a 30 year loan divide it by 360. That would give you a little less than $1000 a month in income.

These assets as income can be combined with other sources of retirement income.

Retirement income

For retired buyers are also eligible for financing provided we can show a source of retirement income. The most common is social security. Depending on the retirees overall yearly income, social security my be untaxed or only partially taxed. In this case, we can “gross up” the untaxed portion of social security by 15% to 25%. On FHA and VA, if you have $1000 a month in untaxed social security we can use $1150. For conventional, we can use $1250 with $1000 in untaxed social security.

Pensions and annuities are treated the same as employment income. However, we must prove that it will continue for an addition three years.

It is important to figure out income early

Income is an area of mortgage financing that confuses a lot of buyers. What buyers actually make and what lenders will use for income is often not the same. A mortgage is always going to be more conservative on income calculation than a buyer. This leaves many buyers frustrated because they cannot purchase a house they believe they can easily afford.

I know this is always the theme in mortgage financing, but talking to a mortgage professional early is key. Know how much you can afford before you start shopping online or with your agent. The more time we have to review your documents the better we can plan.

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