Sunday, March 6, 2011

Miscellaneous Income

Here's what you need to know about using various types of miscellaneous income to qualify for a mortgage.

Alimony or Child Support

• A divorce decree or other legal document must show that the income will continue for at least three years
• Must document that full, regular, and timely payments have been made for the past 12 months
• 6-12 months is acceptable, provided the alimony or child support is not more than 30% of the total income used to qualify the borrower

Capital Gains Income

Only acceptable if the borrower can document the following:
• Capital gains income has been received for the previous two years – income tax returns are required. The income is then averaged over the past two years.
• The borrower must document that they have additional property or assets that can be sold to pay the mortgage

Disability Income

• If the income will continue for at least three more years, it can be counted
• If the borrower is currently receiving short-term disability, which will be converted to long-term disability in the next three years, and the payments will decrease, the lower, long-term payments must be used

Income from Employment-Related Assets

• Examples: 401(k), IRA, SEP, and KEOGH retirement accounts – income is NOT being withdrawn
• The assets must be available for withdrawal without penalty – borrower must be old enough to withdraw
• The assets must be owned individually by the borrower, unless the only other owner is the co-borrower
• Only 70% of the assets can be counted
• Income is calculated as: total assets x 70% / 360
• Example: $500,000 in assets would be calculated as $972 per month in income500,000 x 70% / 360 = 972

Retirement, Government Annuity, Social Security, and Pension Income

• Must document that the income is being received – W-2’s or 1099’s, retirement award letter, etc.
• Must document that the income will continue for at least three years

Foreign Income

• Must have been received for the previous two years
• Must be converted into US dollars

Foster Care Income

• Must have received the income for the previous two years as shown on tax returns
• 12 months is acceptable if the foster care income is not more than 30% of the income used to qualify the borrower
• Must document that the income will continue at a level high enough to qualify for the mortgage

Interest and Dividend Income

• Must show that interest or dividend income was received for the previous two years
• Income is averaged over the past two years
• Must show that it will continue for at least three years

Non-Occupying Co-Borrower Income

• Example: parents buy a condo for their child – often referred to as a “kiddie condo” loan
• Income from the non-occupying co-borrower is allowed for FHA loans
• It is not allowed for conventional loans, unless the occupying borrower can qualify by themselves, without the income

Tip Income

• Must document that the income has been received for the previous two years
• The tip income is averaged over the previous two years
• The borrower’s employer must state that the tip income is likely to continue


Want to watch our video of this tip? Check it out on our web site by clicking here.

Want to make sure your loan closes? Call the Mortgage Experts at 303-345-3683.

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