Last week we talked about getting prequalified. Well what happens next? Getting those documents needed to substantiate your information is the next step. It is important to have those documents to me as soon as possible. When I go over them it can tell me if we have calculated your income correctly, if you are still eligible for the program we were gearing towards, or any obstacles that might be in our way. Documents I receive may even tell us about other needed documents that will best narrate the story that we want underwriting to hear about you and your loan eligibility. Getting all of this done at the beginning is best, that way there are no sneaky surprises later. There’s nothing worse than setting up expectations for a particular loan type or certain down payment, and then receiving a document that shows you make too much income to qualify for the program. Setting up your loan solidly from the start is the gold standard. That way, when you find the house, we know exactly what you can afford and which programs you qualify for because I’ve been able to verify the information I’ve been given or, if the calculations were a little off, we’ve adjusted things BEFORE you’ve made an offer on the house.
The documents I need can vary depending on the type of income you receive. Are you self-employed? Are you retired? Are you a w2 employee? I’ve broken it down for you:
Regular Employees (w2)
30 days most recent pay stubs, with year to date information for all current jobs/income, for all borrowers. This might be one pay stub, or even four depending on how many times you are paid per month. Just make sure that you are giving me the most recent 30-day period and hold onto these because we will likely need updated pay stubs within the underwriting stage.
2 years of tax returns and the associated w2s (for each borrower)
Employer information: I will need to verify your income information with your employer so providing address, phone number, email if you have it and/or any Salary Key or Employer Codes for verification services like the Work Number as applicable. Verifications are important, especially If you receive overtime, bonuses or other variations in your income. They will tell us if that is likely to continue so we can know if we should include that in your income calculations, or just your normal rate of pay.
What other kinds of income do you receive?
Do you get child support or alimony? A copy of the court order will document that or an alternate documentation is proof of payments for the last 12 months, IF you want to use this as a source of income (you aren’t required to.)
Do you have a side hustle or 2nd job? If you’ve worked there or received this income for more than a year, I can usually include it.
Do you get bonuses, commission, or overtime? Your employer needs to verify that it is likely to continue and I’ll need a two-year average to use this.
Do you receive rental income from another property that you own? This counts! (how it is documented can vary depending on several factors, but let’s talk about it.)
We should have a conversation about all forms of income, so we can determine what documentation you need, and to be sure that we are calculating it all correctly.
Retirement/Disability Income
If you or someone in your household receives income from Social Security, Supplemental Security (SSI), Disability or Retirement Funds, it may be coming from multiple streams and can be confusing. Here are some items you may need. I recommend you just read through to see which may apply to you:
Social Security/Spousal or Survivor Benefits: Awards Letter for the current year. This tells us how much you receive in benefits. You should have received this in the mail but if you can’t find it, start by clicking HERE
Disability Income: This may come from one or more sources, but you should receive awards letters. Social Security only allows 100% disability, but other sources like the VA may send partial benefits. It’s possible that you are receiving from more than one source, so document accordingly.
Pension: If you receive a pension from a retirement system like a government, union or corporate entity, you should receive an annual award letter too. Some Organizations utilize the Work Number for verifications, so you might need to provide me with a code If this is the case. If you don’t have the paperwork, the website of the entity it comes from is a good place to start.
Retirement Accounts: If you draw money from a 401k, Roth IRA, traditional IRA, or another retirement account we need to see this documentation. We must prove that the payments will continue for at least 3 years. We will need the quarterly statement (or 2 months if you receive them monthly) and any pertinent documentation of set draws and balances.
Income from Investments: Rental properties, dividends, ownership interest or any interest or income from producing assets can apply as income as well as an asset. We don’t have to prove the 3 years continuation because you own the asset and we don’t have to calculate a percentage because it’s not variable like an IRA investment. I will ask you about this asset both to show reserves, but also potentially as an income source. These cases are more individualized, so let’s talk.
Annuities: Annuities can also be tricky because it is dependent on how it was set up. Some can vary or have an ending balance, and some will continue for your life (and some even have survivor-ship benefits too) This is paperwork that I need to see so we can determine if it’s just an asset or can also be used as a source of income. (Again, 3 yrs continuation is the benchmark we must prove.)
2 Years Tax Returns & associated 10-99s: If you pay taxes, or if you receive w2s or 10-99s for any of your income. I’ll need to see the last two years of those too. (Add in business taxes if those apply.) Even if we don’t use all of the documents, knowing what is available is the best way forward to give the strongest scenario possible in your loan application.
Self Employed Borrowers
I’m self employed. What about all those deductions I took on my taxes?”
citation–Every client who is also a business owner EVER.
Self-employment is a complex situation for a potential homeowner to be in. Thankfully, I have some programs that may benefit you. For self employed borrowers, the assets are as important as the income documents because if you are flush with assets, proving your income may not even apply. Let’s talk. In the meantime, gather:
2 years tax returns both personal AND business, along with all the schedules.
Any associated 10-99s (and w2s if your income has both)
YTD Profit and loss statement
Bring me your assets! More on that next week, but we want both personal and business. I’ll figure out your best option from either the regular income programs or an asset program. You’ve got options!
FAQ’s related to Income
I am on unemployment, will that qualify as income?
Mostly, no. Job gaps can be problematic too. However, once you’ve had a job for 30 days, come talk to me about the situation and I’ll let you know if I can help. There is, however, an exception for seasonal workers. You might still be eligible IF:
You’re a contract worker who works 6 months per year and earns at least $90k and unemployment the rest of the time and you have been at this job for at least 2 years. If this is you, let’s talk.
You say you need 2 years of job history but I’ve been in school.
If you were in school before your current job, we just need to document that with a transcript. Education counts equal to employment for our purposes!
I’ve had a few employers in the last few years, how will that affect me?
If you are a w2 employee, we just need the history it doesn’t matter how long you’ve stayed at each job, though this does vary by loan program. You need to be on your current job for 30 days and we need to document with a letter (and good reason) any job gaps. Let’s discuss.
I only work part time, does that count?
Yes, IF you’ve been in that job for at least two years and the position is likely to continue (verified by employer.)
Got a more specific question? I’d love to talk to you about it! Give me a call, text or send an email. Let’s see if I can help.
