I am planning to buy my first home in May 2003. I need to know what the guidelines are regarding income. I know there is a formula they use X*Income=Loan Amount. How many times your income do they usually approve you for. Also the bulk of my income comes from a business I own. I have back tax returns to show proof of business income but I must admit that my banking records are sloppy in this area, so if they ask for these I'm in trouble. Also I have a job that pays a base salary with overtime. They can also verify this. Basically, can anyone tell me what the income check consists of with both my business and employer. Also, what documents they require and what is the income/ loan amount ratio that the use?
robin, For me, the income/banking documentation requirements were: last 2 years' W-2s last 2 months' bank statements last 2 paystubs (or 4, if I were paid weekly) I don't own a business, so I'm not sure what those requirements would be. Hope that helps... wajaba
Thanks wajaba you did help. Can anyone else pitch in here, specifically, what is the income/loan amount ratio and what are the income documentation they ask for for a business?
A friend of mine asked a mortgate company that she hopes to use. They told her the maximum loan they will give is 3X's her yearly income.
That seems unlikely. My sister makes about $110k and just bought a house in NY for a little over $400k. This must be a rule exclusive to this company though I have heard of this before. I wonder if they all have different ratios.
I am a mortgage banker in NY. The way it works depends on the type of loan you get. Generally speaking most loan guidelines use a 33/41 ratio. Basically this means that you can use 33% of your gross income for housing and 41% towards housing and all other debts. However, this is not written in stone, there are so many different programs out there that depending on your credit scores and downpayment will allow you to go as high as a 65% debt ratio. There are primarily 2 automated underwriting tools that are used to allow the higher ratios, they are freddie mac LP and fannie mae desktop underwriting. There are others but these are the 2 most utilized. The way your income would probably be calculated depends on how you file your business income. If you file a schedule C on your personal tax return then your net profit will be used for your self employment income. The salary job should be calculated using the base pay and a 2 year average of your overtime earnings. I hope this answers your questions. Good luck
Robin, They use different formulas to come up with the ratios they use to determine the amount of home you can afford. I have seen ratios as low as 23% of gross income and as high as 45% of a person's gross income (the monthly payment determines how much home you can afford). A warning - if you don't have to report the business as additional income...don't. Lenders rate self-employed people as greater risks, they usually require all business financial reports from the last 2-3 years, plus a current balance sheet, income statement, and profit and loss sheet. Being that you are a business owner you may find your interest rate will be higher - usually 1/2 to 1% more then the person who works as an employee. The reason lenders look at self employed individuals as a greater risk is because you have access to things most employees don't. Eg. You can alter the amount you bring home or give yourself more pay to increase your gross income so you qualify for a higher home mortgage. Dani
So let me get this straight. I can increase my personal salary from my business and combine it with my employment income and then qualify for a larger loan. Lets say I take $150k from the business income and then combine that with my salary from employment for a total of say $210k assuming by that time I have no debts then what loan range should I qualify for. Also, the business is only a little over a year old by the time I apply for the mortgage it will be a little over 2 years how does this affect things? One last point. What about no income verification loans? Might that be an option since my finances are so convoluted?
Robin, Unfortunately, you can't combine your business income with your employment income - they are going to want to see your W2s for you to prove this. I would suggest a no doc loan. They will want to see payroll stubs. Is your name and the business name the same by chance? Also, are you working as a sole prop.? Dani
Even if you have a large increase in your self employment income, most lenders will want to do a 2 year average of your self employment income anyway. As far as no income check loans, there are a variety of these available depending on your score, number of tradelines on your credit, and downpayment. What is your score anyway and how much are you planning to put down and is the downpayment from personal assets or business?
My score is unknown but I'm sure it's relatively low somewhere in the 500's. However I have three positive tradelines that are each about 4-5 years old never late and a paid off car loan for 19k also never late that is from 1995. That said I have about 8 negative tradelines that should be taken care of by May of 2003 if not before. U think I will qualify for a prime mortgage once my negs come off seeing that my positive tradelines have some age. I'm not terribly worried about the credit part but I am worried about the income verification because like I said my finances are pretty sloppy. If I can get more info on these no doc loans that would be great. Specifically no income verification.
The problem is that no income loans are primarily score driven. If you need to go no income your best bet would be to wait until your credit is at least above 620. If you can not wait, be prepared to get whacked with a horrible rate and probably will have to put down a substantial amount of money, probably around 25-35% downpayment depending on how bad the credit is. I do these loans all day long, trust me on this. Also, besides the scores most no income loans require at least 4 positive trade lines with at least 24 month history on them.
Robin! Did you ever straighten out the library thing? I made them (Unique) place it in dispute themselves and then it mysteriously disappeared about 4 weeks later.
Dimitri has povided you with some very concise info, however, let me jump in at this point with a bit of further info about "NO DOC" or "STATED" loans. There are non-conforming and conforming lenders that will use 1-2 yrs bank statements as verification of income and their rates are only about 1/2 to 1% over what a "full doc" loan would be otherwise. These lenders don't use income tax returns for anything other than to verify that you actually are self-employed and that you file. Lenders a fully aware that alot of income is siphoned away from income as a tax deductable expense. Stated loans only verify that you either are self employed, own your own business or that you work where you claim you do. They do not verify what your income is, just that you have one. The reason a lot of commission people and self employed people go "stated" is because of the hassles and hoops they have to go through to qualify for a "full doc" loan. Another reason that some people choose not to go full doc is that they just don't want all the info to be available. BTW Robin, if the car was paid off in 1995, then it will have no bearing on your ability to get a loan. The older last activity occured on a trade line, either good or bad, then the less weight it carries. Good luck with your loan Robin fla-tan
