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