Mortgage Loan Income Calculations

The amount you report on a mortgage loan as income will affect the ultimate size of the mortgage you can achieve. For some individuals, reporting income is as straightforward as providing a paycheck record. For others, non-traditional forms of salary such as commission, tips, inheritance or other assistance can create more hassle in reporting. Thankfully, mortgage lenders have ways to report this income to accurately reflect your ability to pay on an application.

Providing Salary Verification

Mortgage lenders will verify any direct salary through a number of means. You can provide an income statement from your employer, a record of paychecks or a history of W-2 tax filing receipts. In all cases, the lender is looking for consistency. The stability of your income is as much a concern as the amount. Therefore, it is best to supply this information from an employer that you have worked for as little as two years. Anything shorter, and the lender may shy away from issuing limits as large as you would like. In addition, lenders like to see that your income has increased in the time you were with your employer.

Verifying Tips and Commissions

If you work in an industry where tips, commissions and bonuses represent a large part of your income, you will have to be more creative to verify this. You can provide copies of your tax returns for at least two years to show your taxable income. Similarly, a lender may accept a statement from your bank regarding your average account balance in the given period. If your wages from these sources have been inconsistent, the lender is more likely to use an income estimate on the low end than on the high end. For this reason, it is important to apply at the right time, when your income is stable for at least a few years.

Verifying Alternate Income Arrangements

You may have alternate income arrangements, such as alimony or child support. These forms of income are very easy to verify since they are court-ordered. If you have a copy of that order, you can supply this to the lender. Otherwise, you may work with your bank to show a record of transactions reflecting the payments you receive. All additional forms of income, including inheritance from a trust or regular payments from a lottery, should be reported in order to get the largest possible limits for your mortgage loan.

Verifying Income on a Joint Mortgage

When you apply for a mortgage jointly, you have the advantage of reporting the income of every applicant. This can increase the salary you report significantly. In addition, if your income varies year-to-year but your co-applicant's is stable, the lender will consider that stable income to help increase your limits. It is also worth noting that the credit score of the higher wage earner will be the one considered for the loan. Therefore, you may want to consider how much additional wage you report if you have the worse credit of the two. Sometimes, getting a good interest rate is more important than getting the highest limits possible.