When people start thinking about different types of income, most simply come to the conclusion that income is from their regular paycheck on the 1st and 15th. And that’s true, most people do get their income from their employer. It’s the most common form. Mortgage lenders use this income when qualifying someone for a new mortgage. Yet there are other types of income lenders can use but some may not know about them. If you or someone you know wants to maximize their qualifying income, there are other income sources that might just very well qualify. In fact, if you follow these guidelines, this additional income can be used to help those wanting to buy the home they really want.
Support income comes from one ex-spouse paying another as part of an agreed upon divorce settlement. Most often this comes from the form of alimony, but it can also come from child support payments. In order for a lender to use support payments to help qualify, the first piece of documentation needed is a copy of the divorce decree signed by both parties as well as the presiding judge. It’s perfectly legitimate.
In order for this income to be used, the amounts should be clearly spelled out in the settlement agreement as well as when they will be paid and for how long. In addition, it needs to be verified the settlement payments have been paid on time as well as having a history of payments for at least two years past. From this payment history, it can also be reasonably determined the income will continue into the future for at least three more years. Alimony payments are fairly straightforward and should continue until and if the spouse receiving the income remarries. For child support payments, most decrees state the support will end when the youngest child reaches the age of 18.
This income is derived from investments. Both interest income as well as stock dividends can be used to help qualify. First, the recipients must show the accounts belong to them. This is easily accomplished by providing account statement showing the name(s) of the recipients on recent statements. If there is more than one name on the account, the amounts must be divided equally among all parties listed on the statement. This income must also have proof of having received it for at least the most recent two years. Lenders will then add up the investment income for that period and then divide by 24 (months) to arrive at an average. It’s this amount that will be used for qualifying. Verification is typically accomplished by reviewing past income tax returns.
Disability income comes from payments made due to an injury suffered at your job. Disability income verification comes from providing a copy of the disability policy benefit statement. Lenders can use this income if the determination is made the income will be likely to continue into the future, most often for at least two years. Disability income with an expiration date may not be counted.
Social security income can also be used. Once someone qualifies for an begins to receive social security income, the income is presumed to last. For evidence of receiving social security, lenders will ask for a Social Security Awards Letter. This request is made directly to the social security administration.
Some employees are awarded a bonus, which is an additional amount paid at predetermined schedules based upon certain performance issues, such as generating a sufficient amount of sales. Bonus income can also come in in the form of a regular, verified structure. Perhaps an employer provides a bonus income for on-time attendance. Bonus income must be verified having been received for the previous two years, be regular and available for debt service each month. A quarterly bonus may be used as qualifying income, but an annual bonus might not. Someone receiving an end-of-year bonus might not have all that bonus still available in July, for example.
Part time income can also be used but must follow validation as other types of income. This validation means providing a two-year history of consistent, part-time income. This validation comes from copies of paycheck stubs and W2s from the past two years.