GlobalGrind’s financial coach and author of Yes, You’re Approved: The Real Deal About Getting a Mortgage and Buying a Home, Lynn Richardson, reveals secrets about getting approved for a mortgage in today’s economy.
Previously, I shared secrets about getting approved for a mortgage if your debt ratio is too high, if you have filed bankruptcy in the past, as well as a general list of responses and tips so you may respond quickly to or event prevent excessive underwriting questions and conditions. Well, if you can’t DOCUMENT your income or employment, then chances are, your efforts will be futile and buying a home will remain a distant dream. Since the days of “stated-income” and “no-documentation” mortgages are long behind us, follow these tips to ensure that your homebuying and mortgage approval process progresses smoothly.
1. How to Prove Your Employment Income
a. Provide paystubs for one full month. If you get paid every week, provide 4 paystubs. If you get paid every other week, provide two. If you get paid once per month, provide two paystubs so the lender will have something to compare to.
b. If there are any drastic changes to your paycheck, please explain in writing. For example, if you get paid every week and one paycheck is significantly less than the others, explain this in writing (time off work; bonus received, overtime, etc.).
c. Underwriters will scrutinize your paycheck for deductions that you may have failed to disclose during the application process (credit union loan payments; garnishments; child support deductions; union dues, etc.) so be up front about any and all debts you are responsible for paying.
2. How to Prove You Receive Other Sources of Income
a. Social Security income must be documented by a Social Security Awards Letter, proof that it has been received for the past three months, and proof that it will continue for at least the next three years.
b. Social Security income that you receive for a child or other person (and you are the payee) follows the same rules above, but in the event the income is for a child, you must provide a copy of the birth certificate in order to substantiate whether or not the social security will be received for the next three years.
c. Social Security income received for someone who has a disability follows the same rules in “a” above, but you must also document proof that the disability is expected to continue for the next three years (letter from a physician).
d. Pension / Retirement or Veteran’s Income must be documented by an awards letter, proof that the income has been received for the past three months, and proof that it will continue for at least the next three years.
e. Interest Income must be documented by your last two years of tax returns. The interest will be added up and divided by 24 to determine the monthly amount that you will be able to use to help you qualify for a mortgage.
f. Foster Care / Adoption income must be documented by a letter from the case manager or adoption agency, proof that the income has been received for the past three months, proof that the income will continue for the next three years (this can be reflected in the letter), and the birth certificates of the children for whom the income is being received in order to document their ages and continuance for three years.
g. Child Support / Alimony income must be documented by a court order, proof that the income has been received for the past three months, and proof that the income will continue for the next three years (this should be reflected in the court order), and the birth certificates of the children for whom the income is being received in order to document their ages and continuance for three years.
3. Documenting Your Employment History
a. Provide copies of your last 2 years W-2 forms and tax returns. If you changed jobs, provide all W-2’s and write a letter indicating the timeline of your job history. You may also submit a resume. The underwriter wants to know that you have consistent employment history as well as reasonable evidence that you will have income for the next three years. If you have been unemployed at anytime within the past two years, you will need to provide as much evidence of your previous employment as possible. If you are a recent college graduate and you do not have 2 years of employment, you can still get approved for a mortgage if you provide (1) a copy of your college transcript and your degree and (2) your first paystub on your new job in your field of study. If you have less than a four year degree, you will need to document at least one year of work history in your field of study.
b. If you are self-employed or if you are an independent contractor, you will need to provide two years of tax returns. If you earned $50,000, but you wrote off 20,000 in business expenses, then the adjusted gross income of $30,000 will be used. The total adjusted gross income will be added up for two years then divided by 12 to determine your monthly income amount. You may also need to provide six months to one year of bank statements to document that the income was actually received.