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 of income income that need to be examined. For example, there’s child support or alimony income. If someone is using these as part of the funds to pay PITIA the lender will want to see legal documentation that the income will still 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
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