When applying for a home loan there are many ways you can show income. The most common way is called full documentation, where you show the following forms of income:
- Salary
- Overtime
- Bonus
- Commissions
- Part time job
- Dividend and/or interest income
- Rental income
- Child support or alimony
- Public assistance
- Retirement income
- Disability income
- Military income and allowancesUsing bank statements is considered alternative documentation.
You can show income using bank statements. Some lenders accept 6 months and 12 months of bank statements. The lender then calculates deposits made over that time period and comes up with your monthly income amount. One thing to note is most lenders use deposits only and filter out transfers from other bank accounts.
For salaried borrowers, you typically need your last 2 pay stubs, within the last 30 days of application, and your last 2 years W2s. Your required documentation may be less or more depending on your particular circumstances.
If you are able to document income this will allow you to get better terms from a lender. The less you are able to document, typically, the higher your rate will be.
When using any of the above types of income, you will need to provide the appropriate documents to show the income that you are reporting on the application.
In order to document child support as income you typically need to provide a copy of your divorce decree or order that states the amount that is provided, copies of 3-12 months cancelled checks that reflect a consistent pay history. The income must also be expected to continue for a period of at least 3 additional years from the date of closing.
In times when rates are low and the there is less risk for lenders you may be able to find a Lender that may accept no document.
For self-employed business owners attempting to go the stated income documentation route when applying for a mortgage, it is important to have your business license or other information which may substantiate the legitimacy of your business with you when you contact one of our mortgage professionals
There are also loan programs out their, that do not require any documentation at all.
Some lenders accept alternative documentations to prove income, such as a written Verification of Employment with wage information signed by the employer. For self-employed borrowers, most banks would accept the business tax returns, a year-to-date Profit and Loss Statement, and/or a Certified Public Accountant's statement as proofs of the borrower's income.
Non taxed items such as Social Security can be grossed up to 125%. For example if you received $300 in Social Security you can actually claim $375 on the application. This is standard with nearly all lenders.
If you are self employed it makes it more difficult for you to document your income due to most business write offs causing you to show less income on tax returns. If your credit scores are high enough then you may qualify for alternate forms of financing such as stated income or no ratio loans.
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