Dan McKenzie, Options Mortgage Services, Alpharetta

When we look at a Borrower’s Income, we are generally looking for income that is stable and verifiable for the next 3 years.  Income represents the borrower’s ability to pay their monthly financial obligations.

Income Types and Documentation Required:

1. Wage Earner – this is a person that receives W-2 Income from an employer
   1. Base Pay – Paystub + W-2 covering most recent 2 years
   2. Bonus, Overtime, and Commission <25% – Paystub + W-2 covering most recent 2 years, Must have a 2 year history and the bonus, overtime, and commission will be averaged for 24 months
   3. Commission >= 25% – Paystub, W-2s, and personal tax returns covering most recent 2 year period
   4. 6 month gaps in income will have to be explained.  Generally, the borrower must have been employeed for the last year with no employment gaps over 6 months
2. Self Employed – This includes anyone owning more than 25% of a business and 1099 wage earners
   1. Personal and business tax returns covering most recent 2 year period
   2. Year do Date Profit and Loss statement is required
   3. A 2 year history is generally required
   4. Borrowers that rely on Investment income are considered self employeed
3. Fixed Income – There are a number to fixed income streams to include
   1. Social security
   2. Pensions
   3. Annuities
   4. Retirement income distributions from 401K, SEP, etc.
   5. Long Term Disability
   6. All Fixed Income must be documented along with proof of Continuance for 3 years(This usually requires the borrower to provide information from the source of the fixed income and causes most of the problems with this type of income)
4. Here are a couple of other items to note:
   1. Rental income – basically, we look at tax returns to see income on Schedule-E
   2. Boarder Income – Not Allowed
   3. Temporary Leave Income – must be documented(like maternity leave, short term medical, or other )
   4. Part-Time Job(2nd Job) – To use this income, there must be 2 years uninterrupted history or receiving the income.
   5. Alimony/Child support – a minimum of 6 months of documented receipt of income will be required
5. Unacceptable sources of Income:
   1. Unverifiable
   2. Unstable
   3. Capital Withdrawals
   4. Car Allowance
   5. Draw Income
   6. Education Benefits
   7. Foreign Employers
   8. Illegal Activities(My favorite)
   9. Military hazardous duty pay
   10. Per Diem Income
   11. Gambling income
   12. Temporary Income