Happy (belated) No Shave November everyone! For the gentleman of AZREIA, I hope your beards grew to enormous lengths. Interests rates are still on the rise with another hike rumored to come sometime in August. Even though rates are on the rise, we must remember historically these are not high interest rates at all. The past 8 years of traditional mortgage rates being below the 5s was the reaction to a market crash; which brought unrealistically low rates. If you are waiting for interest rates to recede back down to the rates of 2014, you may be waiting longer than you think.
Let’s talk income… Income is the main derivative when figuring out what a borrower may qualify for in a mortgage. For most traditional loan programs, the lender will calculate usable qualifying income by reviewing items including paystubs, w2s, or tax return. Other loan programs may determine qualifying income based on bank statements to show deposits or rental income based on lease agreements. No matter what the type of loan program it may be, once a lender figures out the usable qualifying income, they are able to calculate a debt to income ratio. Every loan program has a certain debt to income ratio maximum that a borrower must stay below to be eligible.
Even though a borrower may have income in the different forms above, we as lenders also must be able to figure out if said income is stable and usable. Every borrower has a completely different form of income, so we need to evaluate income on a case by case basis. After collecting the borrower’s income documentation, we will request a verification of employment if they are a w2 employee. The verification of employment will breakdown income by year to match up with the documentation provided by the borrower. The verification will also verify items like; when the borrower’s next raise may come, if they are likely to continue work there, and their average amount of hours worked each week. If they are self-employed, we will look at either the tax return or bank statements to determine a monthly usable income amount. With most loans, underwriters will want to see a history of what a borrower has been doing the last 2 years as well. Whether they want to see a history in the certain field of work prior or not will depend on the type of loan and pay. Self-employed individuals will almost always require 2 years of history as being self-employed in that industry. These are just a couple of vague scenarios though, and every program will have different guidelines. For example, there are investor cash flow loans that have no income documentation required but qualify purely off the market rent of the property.
Remember, everyone has a different financial profile and will be viewed in separate ways. There are so many ways borrowers generate income so If you would like to run your situation by us to see which programs you are eligible, don’t hesitate to reach out.
1. Don’t open new debts while in contract
2. Don’t quit your job
3. Don’t deposit substantial amounts of cash into your bank account.
4. Disclose all debts
by Andrew Augustyniak Branch Manager