How a lender looks at your income may be the most problematic aspect of qualifying for a loan.
Income determines your debt-to-income ratio, which is a primary factor in determining your qualifying loan amount. How a lender looks at your income may be the most problematic aspect of qualifying for a loan. One example: many people buy a new home before their old one is sold, often using an equity line on the old residence to purchase the new one. When figuring the debt-to-income ratio for the new purchase, adding in the debt on the old one can make it impossible to qualify, and most lenders do add it in. There is, however, one lender who won’t count the trailing house when figuring the debt-to-income ratio if the house is listed for sale. There are several others who will remove the payment on the trailing house when figuring debt-to-income, but only if it is both listed and in contract. If you are uncertain about how a lender will look at your income, a good mortgage broker should be able to accurately assess your situation and give you options, as well as the perspective that comes from working with many different lenders.
If you are self-employed and doing a full-documentation loan, the lender is going to use your net income after all expenses—line 12 on the first page of your 1040—not your gross income. Also, if you are salaried, different lenders may look at your W-2/pay stub income differently if you receive substantial commissions or bonuses, or have had sharply declining or increasing income. Remember, if you own investment property or a second home that generates income, a lender will only give you 75% of the property’s current rental income. It is very important that your lender know your income situation up front, so that there are no unpleasant surprises down the road.
