Income Reserves
Underwriters look at monthly expenses in relationship to income. Lenders like to see that buyers have liquidity (which is referred to as income reserves), in checking, savings, retirement funds, stocks or bonds. The number of months of reserves covering (PITIA) Principal, Interest, Taxes, Insurance, and Homeowners Association Dues where applicable, required will vary according to loan size and program. Your MLO will let you know the level of reserves required for the loan that you are seeking.
Common Income Issues
Conventional loans generally require at least two years of employment history to qualify. However, less than two years may be acceptable if the borrower's profile demonstrates “positive factors” to compensate for shorter income history. Those who are self-employed typically need to show no less than one year for the current business, and a minimum of two years in their industry.
Quality of Income
The number one quality lenders are looking for in a borrower, because lenders are responsible to prove the borrower's ability to repay, is consistency and level of income. You need to be clear at the outset as to how your income is earned so that the loan originator can set expectations properly and examine programs that are in line with your needs. W-2 income — where an employee receives a consistent paycheck with taxes taken out — is the simplest type of income to assess. The MLO will be able to calculate your Debt-to-Income ratio easily based on your W-2 income and your liabilities as expressed in your credit report. However, there are other types
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