Utilizing All Your income from Every Source
This Blog is going to review the different types of income and the requirements to utilize each type of income no matter how rare. Before we dive into this subject, we must first state that conventional approval departments will not allow anyone to use unreported income, Income is either sourced through your tax returns, award letters or your W2s. First lets discuss what makes income in the eyes of Conventional Approval Departments. Income must be verifiable, reliable & stable in order to be usable by approval departments. In determining the reliability and stability we either have to prove that the income was received the previous two years or will continue to be paid out for the next three years.
Many sources income are variable, these types of income include overtime, bonus & commission income, capital gains income, dividend & interest income, retirement & pension income, part time, second job & seasonal income. If your income falls into one of the mentioned sources then we will have to prove that you have received it for the previous two years. We verify this through your tax returns and will typically have to use a two-year average of the income that you showed on your tax returns. However, when the income has decreased from the previous year then we have to use the current years income without averaging with larger income from the previous year. In addition, if the decrease in income is larger over 20% decline then the approval department can declare the income unstable and not allowable to be used. Tax returns are very important in modern conventional lending.
Other sources of income have to be proven to continue for the next three years, these include alimony, child support & separate maintenance, distributions from retirement accounts like 401ks, IRAs, SEP & Keogh accounts, notes receivable, public assistance, royalty income, social security income, trust income & VA benefits. With these types of income, we must prove that the income will continue for the next 3 years. In order to prove three years continuance we either use the award letter for your account stating that guaranteed payments will continue for at least three years or we take the amount of monthly income you receive from the source and multiply it by 36 and then compare that number to the remaining balance in your account in the month that we close.
Several income sources have additional qualifiers that have to be met before the income can be used. Dividend & interest income must be on the tax returns for the previous two years and you still have to own/have the asset at the source of the income. Another type of income with similar qualifiers is for capital gains income, this is a great source of income for all you home flippers and in order to count your capital gain income from the previous years you have to have inventory, either homes currently listed or under construction. Also when you are underage for your retirement income you will have to meet additional qualifiers first off you will need a letter from the portfolio manager stating the withdrawal amount and the three year continuance has to account for the penalties that you will be hit with.
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