Income Questions You Should Prepare For
When submitting a loan application, there are several things that the underwriter reviews in preparation to issue your loan approval. One of the first things that they review is your income documents.
What are underwriters looking for?
Does your income level support the new loan payment and is it likely to continue? Underwriters will look to see how much income is coming in on a monthly basis versus how much money is going out to the new mortgage payment you applied for, along with any other debts you may be obligated to pay on a monthly basis. For example: The new loan payment, the property taxes, the home owner’s insurance premium, and any association dues if applicable. This is typical for condos, townhomes, and private communities.
If you have additional debt that shows up on your credit report like credit cards, car loans, personal loans, or other mortgages, those debts will be counted in the overall approval of your loan. Additional properties or real estate that you own will also need to be documented. The more detailed you are when disclosing other debts or properties owned, the more exact the underwriters calculations can be on your approval. This will limit any surprises down the road.
Is your income likely to continue?
If you receive paystubs and W2’s, the underwriter will typically contact your current employer and request a verification of employment. These questionnaires typically ask how long you have worked for this company, what your annual or monthly rate of pay is, do you receive any overtime or bonus income, and if so, how likely the income is to continue.
If you received fixed income like social security benefits, pensions, or annuities, there are some additional questions the underwriter may have. How long is the income likely to continue? Will the monthly amounts ever change? Is the income taxable or not? Typically, an awards letter or statement showing where the money is coming from will help the underwriter understand these questions when looking at your approval.
Are you self-employed?
This can sometimes cause a borrower headaches unless you know what the underwriter is expecting to see. The first and most important factor with self-employed borrowers is your tax returns. Have you filed your returns over the past two years showing the income/profits from your business? Typically, self-employed folks will need to show that they have operated their company for a minimum of two years. The income figures will be determined by the tax returns that you file and the income you declare. Many self-employed borrowers write off expenses associated with their business, but often times these can be added back into the income calculation to provide more income and approval on higher payment sizes. Make sure you have copies of your tax returns with all schedules filed at the time of submission to give the underwriter an upfront look at the income for the loan. The first few pages of your tax returns don’t tell the whole story!
Working with your Loan Advisor to submit a clean submission is all about communication, being prepared, and providing the necessary paperwork. Clean submissions will usually have shorter closing times and will make the process easier for the borrower and the lender. It also helps to have a lender that has the entire process in house, from when you first talk to a Loan Advisor, to underwriting, and to processing. If you are able to answer all questions about your income and can provide the documentation, then you have a great start to getting the mortgage loan to achieve your financial goals.