Income Documents

Income documents are simply the documents used to verify income. In order to have a Debt to Income (DTI) ratio, I need to know your monthly income during the pre-qualification process, and since the underwriter will need to verify that income once the loan is submitted, I need to verify your income as part of the pre-approval process, and that will require supporting documents.

Income calculation is based upon your gross earnings and typically broken down into four categories: hourly wage, salary, self employed, and a mixture between self employed and hourly or salary income. For hourly wage earners we are looking for full time employment unless you have two years of part time work history. I also need to know if you are paid bi-monthly or semi-monthly so I can determine how to calculate your gross monthly income. For salary earners, it’s simply your salary divided by 12. The tricky one is self-employed income. The bottom line is we have to go off of your tax returns. We typically need two years worth of self employment income, but with conventional loans I can sometimes use just one year’s. I am looking at your “Adjusted Gross Income” which is what is left over after any deductions and losses you may have taken.

In addition to the four categories above, there is also retirement income, social security, disability, alimony, child support, etc.. All of this can be used as qualifying income and we’ll discuss it during pre-qualification.

I also have to know everywhere you have worked for the past 2 years and supply supporting documentation for all those places of employment.

In order to verify income, I will need the following documents:

  • The last 30 days of pay stubs
  • W2s for everywhere you have worked in the last two years.
  • 2 years of tax returns if self employed
  • Supporting documents for social security, disability, alimony, child support, etc..
  • Rental agreements to count rent income (along with full tax returns – see next bullet)
  • If self-employed I will need your personal tax returns, and potentially your business tax returns and your K-1

Income Doc FAQs

We need 30 days of pay stubs in order to extrapolate your yearly income. In addition to looking at hourly or salary wages, we look at overtime pay, shift differentials, and a myriad of other possible income sources. Your pay stubs must show your earnings year to date otherwise the underwriter will order a “verification of employment” or VOE from your employer.

In order to ensure you have two years of work history and meet government lending standards, we have to verify income over the past two years. W2’s are compared to your tax transcripts that we’ll order during the loan process as an extra step to eliminate mortgage fraud.

For two possible reasons: the first is when we have to order your tax transcripts from the IRS. They will reject the request form if there is any discrepancy at all between your tax returns and your transcript request to include the home address on your tax returns. If it’s wrong on your return, it will need to be wrong on the transcript request so it matches what the IRS has. The second reason is because you would  be surprised at how many times people leave out self-employment income or various places of employment from their employment  history. This gives me another opportunity to make sure your income is correct, otherwise the IRS transcripts will show it and we’ll get conditioned for it.

It depends on how long you’ve owned them and what shows on your tax returns. If it’s a new rental property not reflected on your taxes, lending laws allow you to use 75% of your rental income per property because they are using a 75% occupancy rate and going under the standard assumption you might not have rent income for 25% of the year.

In December of every year the social security administration sends out a benefits letter in the mail that explains your upcoming social security benefits. It comes folded with a perforated edge and once unfolded is quite long. We need this entire document, both sides. Otherwise you need to contact your local SS admin office and get a copy of your benefits letter.

You received a benefits letter that breaks down your disability pay. We need that.

I need your entire divorce decree, any amendments, and any additional court documents for any changes over the years. Yes, this is very personal but you need to know a couple things: Neither I nor underwriters have the time to read these in their entirety. We skim them for the pertinent info pertaining to your child support and alimony so there is not a single instance where I have actually read the circumstances surrounding a divorce. Second, these are public records. Anyone can see them or obtain them if they want to, so holding them back just creates delays.  I had a borrower provide me the most recent amendment to their child support agreement but had an absolute fit about providing the entire divorce decree because it was apparently a nasty divorce. No level of assurance from my end would make my borrower budge. The loan was going to die in underwriting because of this. Lending regulations require the underwriter to see the entire document to trace any and all payments received or obligations. I finally just contacted the court and they faxed them right over while I was on the phone. To this day I have no idea what was in them, nor do I care. It cleared underwriting without an issue and the loan closed.

Along with the divorce decree we will also need to show these payments being deposited into your bank account because, particularly when it comes to child support, there is what the court orders and there is what is actually received.

It documents the percentage of the business or businesses you own, the profit or loss for that business, and if you have a business partner it will tell us whether or not the partner receives a cash distribution from the partnership.