Reasons for Mortgage Pre-Approval | Income

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Part 5 of 5 | Reasons for Mortgage Pre-Approval  See the rest of the series.

Reason #1:  Income for Approval

Income is key to each home loan approval.  While figuring income seems simple, often it is not.  Underwriters apply several rules to figure your “effective income.”

Effective income is the income used to qualify someone for a home loan.   In other words, lenders use effective income as the “income” part of your debt to income ratio.  Various rules factor into effective income.  These rules account for the delta between a borrower’s idea of income and effective income.  For example:

  • Continuity of income
  • History of  income
  • Expenses
  • Income Trends

Often, home buyers believe their income is different from their final effective income.  In fact, specific income types are more troublesome than others.  For example:

  • Overtime income
  • Child Support/Alimony Income or payments
  • Rental Income
  • Self Employment Income
  • Social Security Income

In addition to these, several other income types also require adjustments to determine effective income.  Your loan officer should clearly understand income rules for your specific loan type.   As a result, income hurdles will be spotted during your home loan pre-approval.

By Jeremy House


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