According to a new study, 1 in 4 U.S. adults would like to buy
a house this year. Perhaps you or someone you know is among them, but having sufficient income is a concern. Here are some facts and tips that I hope will help.
Little Known Facts About Income Qualification for a Home Loan
1) With compensating factors, you can be approved for a higher debt-to-income ratio than what is posted.
Don’t get me wrong: I am not suggesting that anyone take on a mortgage payment they cannot afford. Nor am I suggesting that you become a slave to a mortgage. But you should know that the strict 41% or 43% debt ratio requirement is broken every day. With compensating factors, borrowers are getting approved for up to 49.9%. (This makes sense if there is a non-borrowing spouse who contributes income or if there is a secondary income that cannot be counted, because in reality, the debt ratio is much more reasonable.)
2) If you recently got a pay raise, you will qualify based on your new higher income, not last year’s W2.
Similarly, if you are offered a promotion, even if it is with another company, you are always free to take that (and switch companies if required) and still get pre-approved. That said, do not switch jobs in the middle of your loan process without first speaking with your loan officer.
3) You can have a co-signer to help qualify; just be aware that the co-signer must have credit equal to or better than yours and the co-signer will be on title as a co-owner.
4) If your auto loan has less than 10 months remaining, that payment will not be included. (Remind your loan officer in case he or she doesn’t notice this.)
Some Things to Be Aware Of
5) If you take a second, part-time job, you will need to be working at that part-time job for two years in order to include that income on your loan application.
6) If you pay off your credit cards in full each month (as you should), then the minimum payment required will be used for calculating your debt ratio.
7) If you are self-employed, do not take so many deductions that your Adjusted Gross Income does not qualify for the home loan you want. You cannot tell the IRS you make $40,000 and tell your mortgage lender you make $90,000. That is not how it works! You can’t have it both ways.
8) If your income has declined, the lender uses your new lower income, not the average income.
9) You cannot count the following as income: inheritance, gifts, winnings, gambling income, IRS refunds, or any other one-time, non-recurring income. However, you can use that money toward a down payment.
Don’t Give Up Your Dream!
If you want to become a home owner, don’t be like one person who said to me, “If I don’t get approved now, I’m going to spend all my money on a vacation.”
Instead, be like the person who said, “If I don’t get approved now, I’m going to do what it takes in order to get approved next time. Let me know what I need to do.”
Tips For Approval
10) Pay down your credit cards and then going forward, keep those balances low.
11) Go on a spending diet! Sacrifice now for a home, and you will build wealth in the long run. A good way to control spending is to stay off the buying websites and out of the stores. In other words, remove the temptation.
12) Fix the old car, don’t take on a new auto payment. Many people have been sad to learn that their auto payment prevents them from home ownership. Listen friend: a vehicle goes down in value while real estate goes up in value. Be smart and save your money for your piece of The American Dream and then you will increase your wealth through home ownership.
Thank you for reading my blog. Please feel free to share it on social media for others who could benefit from this information.