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Alternative Income Sources for Loan Qualification

Types of Income Mortgage Lenders Will Consider

Loan Qualification Income Your income or more precisely your debt to income ratio will influence your loan qualification. Therefore it is important to include all your qualified income in your loan application.  Not just income generated by your salary/wage.  Overlooking other forms of income may make the difference between getting the loan or not. There are several income sources Fannie Mae will take into consideration as well as other lenders if properly documented.

Alimony or Child Support for loan qualification

To use alimony or child support for loan qualification, you have to prove it's receipt for at least for three years after the date of the mortgage application. You will need a copy of the divorce decree or separation agreement that includes the amount of the award and the duration of the alimony or child support. Lenders will not consider voluntary payments unless they are in a separation agreement. Underwriting will always look at the child's age for child support loan qualification.  If your child is becoming of age, this could mean child support will cease.  You should also present documentation under which payments are to continue once they become 18 years of age. In addition, you have to prove that you received timely, & full payments for at least six months for the lender to consider alimony or child support is stable qualifying income.

Automobile Allowance 

To include the automobile allowance, you must have received such payments for at least two years. Two methods to calculate the automobile allowance money are the following:
  • Cash flow method: If automobile allowances are reported on Employee Business Expenses (IRS Form 2106 or IRS Form 1040, Schedule C). Funds exceeding monthly expenditures are added to the monthly earnings while expenses that exceed the monthly allowance are included in the monthly obligations.
  • Income and debt method: they will add the entire amount of the allowance to your monthly earnings if the car allowance is not on either Form 2106 or Schedule C. They will add the amount of the lease or financing expenditure for the same car to your monthly obligations.

Housing or Parsonage Gains

The lender may consider housing or parsonage income. You'll need to document that you received this allowance for the most recent 24 months.  It also should be likely that you will continue to receive this income for the next three years.
Capital Gains Income
The capital gains are not stable monthly income. In order for your lender to include, it should follow some requirements.
  • Prove two-year of capital gains.  This can be done with copies of the last 2 years federal income tax returns.
  • If you will be able to prove that you own additional assets that can be sold for future mortgage loan payments an average will be used.
Disability Income — Long-Term 
Certain documents are acceptable to prove qualifying disability income.  Some include disability policy or benefits statement from the insurance company.  Proof of payment from the employer, or another qualified party that is the benefits payer.  A type of pay statement or pay summary should be provided.  Your pay statement should indicate things such as the amount and frequency of payments.  And most likely they will look for a date of termination or modification date if the case.
Employment Offers or Contracts
You may approach this situation  in two different ways:
  • Loan delivered after you start working for the new employer. Provide an executed copy of your job offer or employment contract that spells out the anticipated earning. You should provide pay stubs prior to loan delivery.
  •  Loan delivered before you start working for the new employer. This option is limited to purchase transaction, principal residence, one-unit property. Note that a family member or another interested party cannot employ you. Also, you can only use fixed based compensation.
Foreign Income 
Foreign income or the money earned in foreign currency may be used to qualify.  If you work for a foreign corporation/government you may use this income if certain documents exist. For example, copies of your signed federal U.S. income tax returns for the most recent two years that include foreign income. They will translate this income into U.S. dollars.
Foster-Care Gains
You may include these earnings as qualifying if the following requirements are met:
  • Letters of verification from the organizations providing the compensation are available and filed.
  • You can document a two-year history of providing foster-care services.
  • If only one-year history exists, income must represent less than 30% of total gross earnings used to qualify.
For more info on alternative earning sources see Fannie Mae web site.

Don't forget about using retirement income for loan qualification. Contact me, Casey Moseman, to discuss 702-271-1274

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