To qualify for a mortgage, there are many other possible sources of income besides earned income?
When applying for a mortgage, I’ve seen too many occasions where a borrower was denied by “their bank” or by the mortgage salesperson recommended by their realtor, only to see us approve and close the loan.
In order to be approved for a mortgage, there are four main categories for which a borrower must qualify: income, assets, credit, and collateral. I analogize this to the four legs of a bar stool. Unless all four legs are strong, the stool will collapse or tip over.
When it comes to income, the borrower’s qualifying income must be sufficient to cover his Debt-To-Income (DTI) Ratio. This is the ratio of all debt (including the housing payment on the subject property, other owned properties, car payments, student loans, credit card debt, etc.) divided by the qualifying income. While a borrower’s salary or earned income is by far the most common form of income used to qualify, it is NOT the only one!
Qualifying income can come from many sources, including:
- Dividends, interest, and sometimes even capital gains.
- Rental income from investment properties.
- Pensions, social security, disability, and annuities.
- Alimony and child support.
- Foster care.
- Royalties received from television shows, movies, or published books.
- Income and/or distributions from a Trust.
- On some low-to-moderate income-based mortgage products, boarder income is even a possibility!
- Asset-Based Income is an income calculation extracted based upon a borrower’s total net worth of investments.
Understanding underwriting guidelines is critical. And of course, it helps to be able to read, interpret, and truly understand tax returns. These are critical skills that most mere mortgage salespeople are truly lacking. Thus, all the more reason you should work with a trusted and seasoned mortgage professional rather than some mere salesperson at a bank.
Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, The Daily News, Anton Press, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.