Understanding Your Income
Income is still one of the most difficult things for a consumer to understand; what of their income is considered qualifying income for their debt to income ratios. This is not as simple as saying ok, “I make $15 per hour and work 40 hours per week”. That sounds so simple but may not be. This can be very frustrating for a consumer who is working for a company that does not pay for time off. I seen this from small companies through to the largest of companies.
A consumer who is most often scheduled for 40 hours per week may actually have a few weeks from time to time, where they only work 36 or 37 hours one week. This actually has a negative impact on your purchasing power as the monthly income will average lower then what the consumer expects their income to be. This can be very confusing if at times they have worked over-time but they do not have a two-year history of over-time.
As part of the loan origination process a good loan originator will not only pull credit but will do a complete analysis of a least the consumers last paystub. This loan originator may find during their research, changes in hours worked, over-time and bonus. Other things that can create difficulties are commissions and shift differentials. A consumer needs to have a two-year history of commissions, bonuses, and shift differentials for those types of income to be counted. They also need to be averaged over a 24-month period of time.
Other types of income which can cause confusion with consumers are seasonal employment and part-time employment. All the above have been without even discussing self-employed income which is a more complex subject than employee-based income.
The purpose of today’s writing is to express how important it is to plan ahead and start the prequalification process earlier in your home search. Most consumers wait until the last minute to get prequalified. This may cause a rush decision or an incomplete one for a loan originator when writing a prequalification letter for a borrower. A bad prequalification letter could cost the consumer thousands of dollars and loss of time for everyone involved in the process.
Make sure you ask questions, plan ahead, be truthful and upfront with your financial status, get all your facts as well as present all your facts to us ahead of time and we will see you at a happy closing table.