Top 3 Things to Know About Your Income
When qualifying for a home loan, a high FICO score and a large down payment are commonly considered the most important factors. In fact, many other factors are equally important, but the #1 factor that affects your ability to qualify for a home loan is income. Income is king!
Here are the top 3 things to keep in mind when calculating your income for a home loan:
1. You need to have received any bonus income, commission income, or overtime income over a 2-year period for it to qualify as “income.” And if your bonus, commission, or overtime income declined from one year to the next, it will not be considered income at all when qualifying for a home loan.
2. Self-employed borrowers qualify using their AGI (adjusted gross income), i.e. the income reported after deductions. If your business grossed $1,000,000 but $990,000 was expensed that year, your income that year, as far as the lender is concerned, was only $10,000.
3. Employee expense deductions. According to the IRS, non-self-employed people are allowed to write-off various employee expenses. Those expenses are deducted from your gross income to calculate the income used to qualify for a home loan.
Not all money one earns will necessarily be considered income when qualifying for a home loan. Complete a thorough pre-approval with your lender so you know exactly what your lender considers your income. Always know your true buying power before starting to shop for a home!