4 + 8 = 6?

September 25th, 2011

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Income that varies can be overtime, bonuses, commission, self-employment, etc. When getting a mortgage you need a two year history of that sort of income. This way you have a two year history and the underwriter can determine an average income.

Bonus Income example:

  • Assume you earned a $40,000 bonus in 2009. And an $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.

But there would be an adjustment if the bonus income was not rising, but instead was decreasing.

  • Assume you earned an $80,000 bonus in 2009. And a $40,000 bonus in 2010.
  • And in 2011 you apply for a mortgage.
  • They will not average those two years of bonus history together and credit you with a $60,000 a year bonus average. Instead they will use the $40,000 figure to credit you with. This is so because the bonuses are declining. Until you can show they are rising again, they will not average the figures.

Bad news would be if you had a bonus in 2009 of $40,000; but got no bonus in 2010. Then you will not be credited with any bonus income towards qualifying for a mortgage.

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

Self-employed Income example:

If you are self employed lenders look at your net income. This is your income after deducting write-offs and business expenses.

  • Assume you earned $80,000 self-employment income in 2009. And $100,000 in 2010.
  • And in 2011 you apply for a mortgage.
  • They will average those two years together and credit you with $90,000 a year in self-employment income.

Conclusion

You have to have received and be able to document two full years of variable income. Then you will be able to count that income towards qualifying for a mortgage.

Not only do you have to have a two year history of variable income. 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. The underwriter would look for a viable business that hopefully has increasing gross income, as well as net income.

To contact me to discuss your income, mortgage rates, or other mortgage questions, click here to schedule a call or you can email me directly.

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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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