How Income Is Calculated

For your loan approval, we take your gross (before tax) monthly income and compare it to your new home loan payment and minimum payments for all debts appearing on your credit.

Hourly and Salary Income

These are the most straightforward. We take your salary or hourly pay and calculate it for the month. If your hourly income varies we will have to determine your average hours worked with a letter of employment from your HR or a recent W2 and pay stub.

Commission, Bonus, Tips, and Overtime

These are determined using a two year average. We determine these with a verification of employment from your HR that breaks down the last few years of your pay. With few exceptions, commission, bonus, tips, and overtime cannot be used unless you have been at your employer for at least two years. The most typical exception is that you moved employers within the same industry and we can show somewhat consistent pay structure.

Self-Employed and 1099 Income

With few exceptions, these require a two year history. We will use ‘Adjusted Gross Income’ and average it over 24 months. If your most recent year shows lower income than the previous year we will use a 12 month average of the most recent year. Because of the many ways a self-employed buyer can structure their taxes, we will ask for complete federal tax returns before issuing a pre-qualification.

Child Support, Alimony, Social Security, Pension, and Disability Income

These are verified with an awards letter or court decree. To use this income we will need to verify that it will continue for three years after closing and, in the case of child support and alimony, that it has been paid consistently for the last 6 months.

I hope this helps! I believe that by understanding the home financing process, you will have a more enjoyable home financing experience.

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