Mortgage Refinance Tips Determining Your Income

Mortgage & Refinance Tips: Determining Your Income
When you​ apply for a​ refinance,​ debt consolidation or​ purchase mortgage,​ one of​ the​ most important factors in​ qualifying for the​ loan is​ your income .​
That may not seem like much of​ a​ surprise,​ but you​ may be surprised at​ all of​ the​ different ways your income can be calculated based on​ how well you​ can document it,​ and how much this can affect your loan process .​
Get a​ leg up on​ the​ loan officer and learn how to​ determine your income yourself.
Your lender looks at​ your income on​ the​ basis of​ how well you​ can document it,​ and will allow you​ to​ borrow more money at​ lower rates the​ more you​ can document your income .​
If you​ have been in​ your job for a​ while and have years of​ W2 statements,​ IRS filings,​ and bank statements you​ probably fall into the​ Full Documentation or​ Full Docs basket .​
Typically you​ can borrow the​ most money as​ a​ percentage of​ the​ property’s value with a​ full doc income verification .​
If you​ are on​ a​ salary and you​ get two checks a​ month,​ take the​ gross amount before taxes on​ your check and multiply by 2 .​
That’s it,​ that’s your income (of course you’ll need to​ present a​ little bit more documentation to​ the​ lender!) .​
If you​ get paid once every two weeks you​ can multiply the​ gross amount before taxes on​ your check by 26 (as there are 26 pay periods in​ a​ year) and then divide by 12,​ the​ number of​ months in​ the​ year .​
Hourly employees should multiply their hourly pay by 173 to​ get their monthly pay,​ unless of​ course you​ earn substantial overtime or​ commissions .​
In the​ event you​ earn substantial overtime or​ commissions/bonuses,​ you​ will have to​ pull out your W2s from the​ last few years and average them,​ usually just the​ past two years are used .​
So add up all sources of​ documented income for each year and divide by 24 .​
Self-employed / 1099 individuals should pull out Schedule C of​ their last two tax returns,​ add up the​ Profit line (which indicates how much money you​ told the​ IRS you​ made) for both years and divide by 24.
If you​ earn money from rental of​ a​ property or​ any part thereof,​ you​ must have a​ legal rental contract and necessary local approvals to​ rent the​ property just to​ include the​ rental income at​ all,​ and you​ will only be able to​ use a​ portion of​ this rental income because lenders will assume that there is​ some risk of​ vacancy in​ the​ future.
If you​ cannot fully document and verify your income or​ the​ bulk of​ it​ comes from commissions,​ bonuses or​ self-employment you​ may be able to​ apply on​ the​ basis of​ Stated Income,​ where if​ you​ have a​ sufficiently high credit score (in most case 620 or​ better but in​ special cases as​ low as​ 580) you​ are allowed to​ simply state to​ the​ lender what your income is​ .​
Stated income loan programs generally reduce the​ amount of​ money you​ can borrow in​ a​ cash out refinance,​ debt consolidation or​ purchase loan,​ and people who are on​ a​ fixed income such as​ social security or​ pension are not eligible for stated income programs .​
There are also a​ variety of​ limited document programs and even no document or​ no docs mortgage programs available for people with good credit and fixed incomes who need to​ borrow less than 70% of​ the​ value of​ their property.

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