Adding Income to AZ Home Loan

Adding Income to a Mortgage Application AZ

Finding Additional Income to Qualify

Believe it or not, there is a way for a mortgage company to increase a borrower’s income.  When you apply for a home loan in today’s mortgage world, typically the AZ loan officer handling your file will take a minimalist’s approach when calculating your income.  They will err on the side of caution and try to obtain loan approval using the most basic and straight forward income available to you (for ex: if you earn a base and a bonus the loan officer may try submitting your file just with your base to make the process easier for you).

While I agree with and use this approach when applicable and helpful, what do you do if/when more income is needed to help you qualify for a home loan?  There are several circumstances where an Arizona Mortgage Lender can add income to your application above and beyond what your income documents show.  Here are the most common scenarios that a Phoenix area mortgage company can add income to your application to help you qualify:

1. Grossing Up Social Security Income:

If a loan applicant receives social security income AND they are not taxed on it the mortgage company reviewing their application can give credit for 125% of the gross social security income (ex: if social security income is $1,000 per month the borrower would receive credit for $1,000 x’s 125% = $1,250 per month in social security income)

2. One Time Costs:

Many borrowers show one-time costs on their tax returns.  These typically show up on either the borrower’s schedule E (for Real Estate related costs) or on the borrower’s schedule C (as business related costs).  Examples:

  • A borrower that owns investment/rental real estate may have had to fix up one of their rentals after a major flood.  While this will show as an expense reducing their income, an AZ mortgage underwriter will allow for this expense to be added back to the borrower’s income as long as the loan officer documents that this cost/expense was truly a one-time/extraordinary cost.
  • A business owner may also have one time costs.  For example, many businesses require additional start-up costs in the beginning phases of operation.  The income shown on a self-employed borrower’s schedule C would be reduced  by these expenses in the businesses first year.  If the borrower’s tax professional either designated these costs as “start-up costs” on the borrower’s tax return OR the borrower’s loan officer can work with the borrower to document that the expenses were in fact one-time in nature, an underwriter may allow these costs to be added back to the income being used to qualify the borrower.

3. Depreciation

Borrowers that show depreciation as an expense/deduction to income on Real Estate property or in relation to a business may be able to add this back to the income being used to qualify them for their new AZ home loan.

4. Business Mileage:

While un-reimbursed business expenses are typically directly deducted from the income used for qualifying, a borrower that claimed business mileage as a part of their un-reimbursed expenses will be able to add income back to their loan application based on a pre-designated per mile basis (the mortgage lender will state that for each documented business mile claimed on their taxes the buyer can add back $.xx per year to their income) Learn more.

5. Income From Assets:

If a borrower is retired, their lender may be able to also give them income credit based on the amount of money they have in retirement investments even if they have not been pulling funds from their retirement asset base.

So while it may sometimes seem that Phoenix area mortgage lenders are out to cut an applicant’s income, there are ways that an experienced loan officer can actually increase the income being used to help qualify the borrower..  This can help someone qualify for a larger loan and/or may help improve the interest rate that the borrower receives by lowering their debt to income ratio.

Please feel free to call me or email me if you have any questions.

By Jeremy House
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