Not everyone makes money the conventional way. Some people have sporadic sources of income but which sources of income will a lender use to qualify you for a mortgage?
Lenders will review all sources of income, but typically use only sources that are expected to continue on a steady basis.
They will distinguish between sporadic or occasional sources of income, and stable, regularly scheduled income. Borrowers can document supplemental sources of income by providing copies of bank statements showing deposits of amounts claimed, tax returns, and payroll/deposit stubs from employers.
There are special rules that apply to certain types of income, and these exceptions are reviewed case by case;
• Trust Income. If the trust is irrevocable and guarantees a payout for three years after closing, the income may be used. The borrower must provide a copy of the trust agreement and proof of two years of continuous payments.
• Social Security, disability and public assistance. This income must be verified as nontaxable. You’ll be required to provide documentation and tax returns. The borrower must also show proof that these payments are likely to continue.
• Unemployment income. Some lenders will allow this income to be used, if you can show you’re a seasonal worker. You’ll have to show that you have been receiving this type of income for the past two years. Proof is imperative, so you’ll have to show records of payments received.
• Notes receivable. If you hold a note and are collecting interest for a minimum of two years previous and will continue to collect this interest going forward, the interest may be added in as income. This doesn’t include a personal loan where your sister, for example, owes you $10,000 and pays you $100 per month.
• Rental income. You will have to show the lease that the tenant has signed as well as documented proof of the rental income, such as bank statements. Only 75% of rental income can be used towards qualifying a borrower for a mortgage.
The key factor for lenders to determine your income eligible for use in prequalifying you is continuity. Do you have continuous and reliable income that can be used to repay your mortgage? You can also include salary and/or wages from full and part time permanent jobs and employer paid bonuses that are paid on a predictable, periodic basis.
Those borrowers who are qualifying for a mortgage loan should pay special attention to the sources of income you use because it can help you understand how much you can really afford to pay for a home.
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