of income that need to be examined.
For example, there may be child support or alimony income. If someone is using these as part of the funds to pay PITIA the lender will need to see legal documentation that the income will continue to be paid for at least another three years. When a person is on permanent disability, they receive monthly payments via the Social Security administration. The lender will ask for documentation to show the level of this income and how long it is expected to continue. Another type of income is contract labor and/or temporary work income. In these instances, borrowers are likely to have income that varies widely throughout the year, i.e., they make a lot of money some months and much less in others. This needs to be addressed by underwriting differently than straight W-2 wages which are marked by consistency. Some borrowers receive an annual bonus based on performance over and above their base salary. The lender will be looking for consistency in receipt of the bonus over the prior 2 or 3 years (depending upon the program) in order to be able to use it as income. Commission income can be erratic as it is usually tied to the borrower having created sales. There are some lending programs that accommodate this kind of employment income more easily than others.
The Debt-to-Income (DTI) ratio
The debt-to-income (DTI) ratio is a mathematical calculation of how much a person is required to pay against their debts each month compared with their total monthly income.
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