for in a potential borrower is whether or not they are employed. W-2 income — where an employer pays an official employee a regular paycheck with taxes taken out — is the best type of income, because it shows job security. However, there are other types of income of varying quality . For example, there’s child support income. If someone is living off child support payments (or the bulk of their income is via child support), the lender will want to see court documentation that proves that income will still be coming for at least another three years. If the child support payments will stop soon after the loan would be signed, it’s likely the lender would squash the deal (unless the borrower could prove where new income sources were going to come from). There’s also disability income. When a person is on permanent disability, he/she receive monthly payments via the government from the social security administration. In many cases, these payments will come for the rest of the person’s life, which makes the bank feel secure. However, these payments are often very low amounts, depending on certain factors, and are unlikely to change with the economy. That means a disability check of $3,000 a month might seem good now, but what will $3,000 a month be worth 10 or 20 years from today? A good lender will think about these things. We’ve already discussed the loan problems facing people who are self-employed, but it’s worth bringing up again here, as self- employed income is a certain quality of income. The two biggest issues that this kind of income brings up for a lender is that there is a lot more paperwork involved and the borrower needs to have at least two years of full-time self-employment to even begin to qualify. Even if the borrower makes a ton of money owning his/her own business, a good lender won’t care unless there’s documentation to prove it and that the documentation shows over two-years of solid revenue.
42
Powered by FlippingBook