In today’s world of mortgage lending showing enough income is paramount to qualifying. Here are some alternative income forms that can be used for a mortgage qualifying…
Mortgage banks look for income to offset debt. If you’re monthly debt payments exceed your income you may have a tough time qualifying for a mortgage. Underwriting which is the decision-making of whether not to grant credit, determines what your income is with supporting documentation you provide i.e. pay stub’s, W-2s, tax returns. Following are various forms of income most mortgage providers will sign off on.
→Annuity- if you’re eligible you can purchase an annuity which will generate a fixed monthly income. The terms of this income will be used in determining how much mortgage and/or house you can qualify for. The income derived from that annuity is what is specifically used to qualify you. For this to work the income must be poised to continue for the next 36 months or longer.
↔Social Security- if you’re eligible for Social Security, you might want to consider the possibility of taking Social Security early as this income can very easily be used for qualifying for a mortgage. In some cases your Social Security income can be grossed up by 1.25% (boosting your income on paper only), subsequently enhancing your borrowing power.
→Note receivable income- generally you’ll need a history for this income to count. This income has to be based on a market rate and it is the interest on this note receivable income that is used in determining your eligibility for your desired loan size. For example if you have a note receivable at say 5.5% based on a principal balance at 50k that income would be $229.16 per month income used for a mortgage (set at the interest only portion).
→Purchasing a rental property- if you are looking to purchase a property for rental purposes, you’re in luck. You can use projected fair market rents to qualify when buying a property for the intention of renting it out. Lenders will give you the benefit of 75% of gross market rents to use as an offset against the mortgage payment. In other words, because the renters are paying the mortgage payment, you don’t need to earn as much to qualify to attain a green light on your loan application.
→Renting out current home-if you are trying to buy a new primary residence, but you don’t have enough income to support two mortgage payments, you can put a renter in your current home and rent out the property complete with a rental agreement and tenant security deposit. This allows you to offset the mortgage payment on your current home for the benefit of being able to qualify for a new one. The concept is almost identical as purchasing a rental property, with the exception of renting out your current home needs to have a rental agreement in place whereas the rental property scenario identified above does not.
→Self-employment income-a history of self-employment income is required in order for the self-employment income to count towards qualifying for a mortgage. Generally, schedule C income needs to be in place for at least 12 months in order for that income to count in your borrowing power. Note: if you have been self-employed the last two years and you had one bad year, followed by a good year, your income will be averaged by your lender. The one year of self employment would be more in alignment with you being previously W-2 and then changing to self employed. Note: most mortgage providers would need 12 full months of self employed income for income for qualifying. If 12 full months is not there, however many months of self employment income there is identified by the 1040 tax return would be used.
*Always be sure to check with a tax professional with anything that may change your income.*
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