We require full documentation for conventional loans (including all income and assets). We do allow for limited documentation on FHA and VA streamlines.
Acceptable types of income documents
Generally, the income of W-2 borrowers is verified by obtaining copies of the last two pay stubs and copies of the last two years W-2 statements.
The income of a self-employed borrower is, generally, verified by obtaining copies of personal (and business, if applicable) federal tax returns for the most recent two year period.
We review and average the net income from self-employment shown on your tax returns to determine the income that can be used to qualify. We do not consider any income that has not been reported on your tax returns. Typically, we need at least a two-year history of self-employment to verify that your self-employment income is stable.
Bonus, overtime and commissions
In order for bonus, overtime or commission income to be considered, you must have a history of receiving it and it must be likely to continue. Usually, we will request copies of W-2 statements for the previous two years and two recent pay stubs to verify this type of income. If a major part of your income is commission earnings, we may need to obtain copies of recent tax returns to verify the amount of business-related expenses, if any. We then average the amounts you have received over the past two years to calculate the amount that can be considered a regular part of your income.
Bonus, overtime, or commission income should have been received for the most recent two years. Periods of 12 to 24 months may be considered as acceptable income, if the borrower’s loan application demonstrates that there are positive factors that reasonably offset justifying use of a shorter income history. Income received for less than one year would not be considered stable and reliable.
It may be possible to use income from a second job to qualify if a consistent two year history of secondary employment can be verified.
Retirement or Social Security
We generally ask for copies of your recent pension check stubs or bank statements if your pension or retirement income is deposited directly in your bank account. Sometimes it is necessary to verify that this income will continue for at least three years, since some pension or retirement plans do not provide income for life. This can usually be verified with a copy of your award letter. If you do not have an award letter, we may be able to contact the source of this income directly for verification.
If you are receiving tax-free income such as Social Security earnings, we require the award letter or proof of receipt in most cases.
If you own rental properties, we generally ask for the most recent year’s federal tax return to verify your rental i
We may require that you have a one/two year history of rental ncome. We review the Schedule E of the tax return to verify your rental income after all expenses, except depreciation.income on your tax returns for the income to be considered.
Dividend and interest income
Generally, two years of personal tax returns are required to verify the amount of your dividend and/or interest income so that an average amount can be calculated. In addition, we need to verify your ownership of the assets that generate the income using current copies of statements from your financial institution, brokerage statements, stock certificates or promissory notes.
Typically, income from dividends and/or interest must be expected to continue for at least three years to be considered for repayment.
Child Support, alimony, or separate maintenance income
We will generally request a copy of the court order or divorce decree to verify this income and its continuance. We will need to document consistent receipt for the most recent six months or in some cases longer.
We may allow foreign income to qualify, depending on how that income is paid and documented on your personal tax returns.
What is a debt to income ratio (DTI)?
A debt-to-income ratio (DTI) is the percentage of a consumer’s monthly gross income that goes toward paying debts. DTI often covers more than just debts listed on your credit report; it will include other items such as taxes, home owner’s association fees, insurance premiums, etc. It is calculated by dividing total recurring debt by gross income. A lower DTI is preferable when applying for a loan.
The maximum DTI allowed varies, depending on loan type.