4 + 8 = 6?

September 25th, 2011

When you have any sort of income that varies, such as overtime, bonuses, commission, self-employment, etc; you need a two year history of that income. This way, when you have a two year history, the underwriter can determine an average income. For example:

if you earned a $40,000 bonus in 2009, and a $80,000 bonus in 2010, and in 2011 you apply for a mortgage, they will average those two years of bonus history together and credit you with a $60,000 a year bonus average.

If you are self employed, and earned a net income (after write-offs and business expenses) of $80,000 in 2009 and then $100,000 in 2010, you’ll be credited with $90,000 when qualifying for a mortgage.

And they may have you average in the current year’s income, taking the example above:
$80,000 in 2009.
$100,000 in 2010.
$60,000 through end of June 2011.
In the above example, you’ll be credited with $96,000 when qualifying for a mortgage. Here is how the math works:

$80,000 over 12 months of 2009
$100,000 over 12 months of 2010
$60,000 over 6 months of 2011
=$240,000 over 30 months
=$8,000 a month in income
=$96,000 a year average over that whole time frame.

And the bad news, if you had a bonus in 2009 of $30,000; but got no bonus in 2010; then you will not be credited with any bonus income towards qualifying for a mortgage.

If you had no bonus in 2009, but in 2010 got a $30,000 bonus, and have not earned a 2011 bonus yet; then you will not be credited with any bonus income towards qualifying for a mortgage.

Until you have received and can document two full years of variable income, then you will not be able to count any of that income towards qualifying for a mortgage.

Not only do you have to have a two year history of variable income, but you also have to be able to show that the continuance of such income is likely to continue. For bonuses and overtime, this can be done with a letter from your employer. If you are self-employed, this would simply be proven by looking at your business tax returns and seeing a viable business, hopefully with growing gross income, as well as net income.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.​

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