In qualifying for a mortgage, there are several sources of income you are able to use. But note: Regardless of the source, you will need documentation indicating either that you’ve received this income for two years, or that you expect to receive it for the next three years or more. In addition to the traditional hourly/salary sources of income, others that may be used are:
- Commissioned/self-employed: A minimum of two years of documented income must be provided on signed federal tax returns. A 24-month average will be calculated to determine a usable monthly income for the purposes of qualifying for a mortgage. Lenders are most concerned with self-employed borrowers’ adjusted gross income (their income after write-offs.)
- Rental property income: This also requires two years of documented income supported by tax returns.
- Social security/pension/disability: Even if you have just started receiving any of these through monthly installments, as long as you can prove that you will receive them for at least three years, you can use them as income. With these forms of income, the amount will be “grossed up” to account for the fact that taxes usually aren’t withheld from them as they are with other types of income. To establish gross monthly income – which you can use for income to qualify for a mortgage – multiply your monthly check by 125 percent.
Also note that unemployment benefits, while still considered a payment stream, have end dates, and therefore can’t be used as income in obtaining a mortgage.