Income Requirements: Qualifying for a Home Loan

income

Wondering if your income will qualify you for a home loan? Below are several points stating the income requirements to be able to qualify for a home loan.

  • All income must be reasonably expected to continue for at least 3 years and have a probability of consistency.
  • Self Employed must show increasing trend, not declining trend. You must have been self employed for two years and this must be shown on your tax returns.
  • Commission, bonus and overtime income must have been received for two years prior to loan application and be expected to continue.
  • Borrower must be on the job or in the same field at least two years.
  • If you have any part time, second or multiple jobs, you must have two years uninterrupted
    time on the job. Uses a two year average.
  • Seasonal income
    • Borrower must have work experience in the same job or same line of work for past 2 consecutive years and must have documentation that they will rehire.
  • May use unemployment or Tip may if borrower has been receiving for most recent two years and is on the tax returns, likelihood of continuance can be shown and related to seasonal employment. Uses a two year average.
  • Military Income
    • Ok to use hazard pay, flight pay, clothing allowance, housing allowance, etc as long as able to document received 2 years and will continue in the future.
  • Child support, Alimony, Worker’s Compensation must be able to document will continue at least 3 years.
  • Social Security Retirement or disability
    • Must have documentation and will continue.
  • Pension
    • Must document will receive at least 3 years.
  • Foreign
    • If received for most recent 2 years, listed on the US tax returns and
      expected to continue.
  • Auto and housing allowances
    • May use as long as borrower has been receiving since last 2 years and is going to continue.
  • Note Receivable and Royalty
    • Has received for past 12 months and can document will receive at least 3 years
  • Interest, Dividend &Trust Income
    • Borrower has received for past two recent years and can document will receive at least 3 years.
  • Cannot use Capital Gains income because it’s generally a one-time transaction.

Are You Ready For Homeownership?

Homeownership

Steps to be ready for homeownership

Here are some questions to ask yourself when looking at homeownership:

1. Are you sure you want to buy a house?

2. Do you have steady income and stable employment?

3. Do you anticipate remaining in the same geographic location for the next couple of years?

4. Have you created a budget so you know how much you can realistically afford to pay for housing?

5. Do you have an established credit record or can you build a nontraditional credit history with letters of credit for twelve months or more with no late payments?

6. Do you have enough money saved up for a down payment and closing costs? If not, can you get a gift or loan for this money?

7. Have you been “pre-qualified” by a lender so you know how much to borrow based on your income and existing debts?

8. Is your existing debt low enough that it will not limit your ability to qualify for and pay for a mortgage?

9. Have you looked into all types of financing available to you?

Understanding the obligations as a borrower

There are certain obligations that are required of being a borrower. You MUST:

1. Make all house payments on time.

2. Maintain the property

3. Maintain insurance on the property

4. Maintain employment or income to meet all obligations

5. Never have hazardous substances on the property

6. Avoid obtaining equity loans in excess of what you can afford to pay

7. Contact the mortgage company if problems arise in making your house payment due to lost job

Settling in

Here are some tips for after your loan closes:

1. Discard anything possible before the move to aid in unpacking.

2. Arrange for the move with professionals, friends, church or volunteer groups (if possible) to avoid injury.

3. Inspect the property before moving in for breakage or incomplete repairs that are needed.

4. Meet the neighbors.

5. Protect your investment— post emergency phone numbers, install smoke detectors, install deadbolt locks, change all locks, install fire extinguishers, have an exit plan, keep all homeowner’s insurance current.

6. Keep a house file with important documents, warranties, etc.

7. Keep homeowner’s insurance and taxes paid.

Maintaining your home

Here are some suggestions to help maintain your home:

1. Send in all warranties.

2. Record all items and obtain pictures of large items in case of fire.

3. Run a seasonal inspection checklist (filters, smoke detectors, etc.)

4. Set thermostats at the most cost effective energy saving setting

5. Do minor repairs as needed so as not to turn into major repairs

6. Maintain lawn and outside area in good repair

7. Hire reputable contractors for major repairs

Financial Planning

Lastly, here are some tips to plan financially for homeownership:

1. Budget for moving and initial expenses

2. Have a household budget and stick to it!

3. Do annual tax planning

4. Pay extra principle if possible

5. Defer capital gains tax

6. Keep records on all home improvements (lowers your capital gain)

Buying a home is an exciting experience and should be approached with much thought and consideration. If you have any questions on the above topics, feel free to email me at klgrodi@gmail.com or call me at 615-970-2216.

12 Ways to Improve Your Credit Score

Credit Score

1. Write your name clearly and always be consistent. Use the same identification information on all applications.
2. Always pay bills by the due date, even if you pay the minimum amount due.
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3. Try to keep your balances low. Use no more than 50% of the available credit on any of your lines of credit.
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4. Check your credit limits and evenly distribute the debt. Input your amount of income correctly and make sure the information is up to date when pulling your credit. Make sure maximum credit limit is being reported— if no limit is reported, credit scoring software presumes the account is “maxed out”!
5. Open new credit in moderation. Compare total credit available with yearly household income.
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6. Maintain a healthy mix of accounts: some installment, mortgage and revolving.
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7. You need three accounts open at all times. After you have 3 open accounts with at least 24 months of history, close other accounts. However, if an account has a high limit or long history, you might think twice about closing the account.
8. Monitor all your co-signed or joint accounts you have. If there are late payments on these, this will affect your credit report and scores!
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9. Get rid of late payments that are listed on your report. Contact the company and request a good faith adjustment that will get rid of the late payment. Don’t be late on any payment after that no matter the amount. Any amount of payment ($10-$20 per month) hurt your credit score. Any late payment can lower the score – small payments, auto or mortgage payments being late. The type of account weighs heavily on the number of points subtracted from the score, e.g. late payments on a mortgage deducts more that late payments on a cell phone or credit card account.
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10. Dispute collections, judgments and charged off accounts if you have proof they are not your debt. If you never received a “30 day letter” the company must remove the collection from your report, upon your request. Pay off past due accounts, collections, judgments and charged off accounts. If they are your debts – many companies will negotiate this debt for a lesser amount. Be sure and get a written letter on the company letterhead, signed and dated – spelling out the settlement amount and they will consider the debt paid in full – BEFORE you send them the agreed upon amount.
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11. Request all three national credit bureaus to delete charge-offs, collections, judgments and bankruptcies that have been paid and or settled. You must provide written proof. An alternative is to work with a reputable company that specializes in getting derogatory items removed.
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12. Review your credit report, from all three national bureaus, for accuracy at least annually and 60 to 90 days before making a major purchase.