Monday, August 11, 2008

Home Loans: Two Incomes Cut from the Same Cloth

Determining income is tricky when it comes to underwriting a home loan. Sometimes, it turns out you can make too much money. It just depends who’s looking at it.

Did you ever think you could make too much money? Or what if you potentially could make too much money? Now that sounds just plain old silly, doesn’t it? But believe it or not, different entities view your income in different ways. And depending on the situation, you might make too much moola.

Typically, an underwriter is going to be fair yet conservative when determining your income. If you make overtime and you want to count it, you’re going to have to show that you’ve received it for a decent amount of time and that it will continue. If you’ve only been on your job for a few months, you’re not going to be able to use anything but base income to qualify. Even if you’re in the same line of work. Even if it’s typical for the position and and you have a letter from your employer stating overtime will be available to you for the ten years. To an underwriter, in most cases, it’s all conjecture and forecasting. Not the kind of stuff you want to base lending $100,000 dollars against. The underwriter is going to stick with base salary. This rule of thumb applies to conventional, VA and FHA loans. There’s a little variance between agency guidelines, but not a ton.

Consider alimony. Maybe the court says you should get $300 a month, but your ex only pays you sporadically. You’re probably not going to be able to count it. It’s not fair that you can’t, but don’t bet on it. Most of the time you have to show where you have received the income for at least 3 months and more typically 6 months consecutively before you use that extra boost to your bottom line. You also have to show it’s going to continue for at least three years

Now here’s the funny part. If you are applying for a loan that has an income guideline or limitation, all bets are off. Some lenders will count potential income that you could start collecting. Others will average recent overtime into their equation. Typically, these type of loans go through two sets of underwriters (sometimes three!). The first underwriter will verify that the loan conforms to agency guidelines (Fannie, Freddie and Ginnie). When run through this gamut, you will see more traditionally conservative income guidelines applied. But say the lender is selling the loan to THDA (Tennessee Housing Development Agency). This agency has very strictly monitored income guidelines you must meet in order to qualify for the program. This entity will ensure you don’t make too much money as a first time homebuyer because its program is strictly for low to moderate income individuals or families. All of a sudden, your income looks different.

Here is an example of a loan I had recently. This loan was an FHA loan being sold to THDA. The wife on the loan had an ex-husband who should have been paying her court awarded child support in the amount of $320 per month. The ex had only sporadically paid her over the last 6 months, and when he did, it was only half of what he owed her. FHA would not include the income at all, yet THDA counted the full amount.

So which of the above underwriters was correct? Well actually, they both were. It just depends on what your objective is when determining the final figure. And that’s why you can get two incomes cut from the same cloth.

Let My Experience Work For You!

Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at or call direct: (865) 567-0113 Toll Free: 1-800-489-8910.

For more information visit her website at Home Loans Plain Talk.


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