It can sometimes get complex with unique situations. If you’re just somebody that makes, let’s say, $20 an hour and you work 40 hours a week. You have a job where if you take a day off you’re covered and it represents a 40 hour work week. Then what we do is we just calculate your income. $20 an hour times 40 times 52 divided by 12 = $3466.00 per month.
That will be your qualifying income for a home loan. Whether you’re purchasing FHA, VA, conventional, jumbo, pretty much across the board. That’s a standard way to evaluate your income.
Additionally, lenders look for if you earn bonus or overtime income. We will allow that income to be calculated in your debt ratios as it’s occurred for two years.
Bonus income and overtime income can be tricky. I am a technical loan officer, so I don’t rely on other people to tell me if a files income is good or not. If it’s something that I believe in and I can make work, within reason. I am going to do it.
Often times, I’ve turned a file in my processor is like, “Oh, yeah. This is not gonna work.” Or it goes to the lender and the lender’s like, “Yeah. That’s not gonna work.”
If it’s something that I really believe in. I’m gonna make that work for you to qualify in home loan. I’m going to make it work before you get into escrow. We’re going to work out all the kinks before you get into escrow. I know and understand guidelines and many times I have been able to do a deal when other lenders cannot, because I understand that income part.
It’s not just understanding the income part, sometimes it’s going deeper and being able to figure things out. Sometimes what something appears, it’s not. I’m trying to think of a good example of that, but I can’t right now. We’ll just move on.
Now, what if you work 40 hours a week, typically, but maybe you’re out of vacation and the last two pay stubs we get are. You only worked 36 hours? You didn’t have anything to bridge that gap. What I would be able to do is I work something out. Where I did a letter of explanation supported by pay stubs. The entire rest of the year that showed you traditionally work a 40 hour work week. What if, when I get those pay stubs. I discover this is kind of like a typical thing? Sometimes you’re working 36 hours. Sometimes you’re working 32 hours. Then a whole month you’ll work 40 hours.
Well, when this is the case, then it’s not we cannot use that 40 hours. What we’ll have to do is average your income over two years. There are different strategies that I use to come up with a calculation and be able to sell it to the lender or to the underwriter for you to qualify for home loan. Depending on whether it’s FHA or conventional, it can get kinda tricky.
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Bonus and overtime, you can really get caught up in this. We have people a lot of times where they’re in the trades. And they’re making a significant amount of income on an overtime basis. If you are, traditionally we don’t need to look at your 1040s, but if 25% of your income is commission-based. We need to look at your federal form 1040s and look at all the other things that you may or may not be accruing, such as business deductions.
On your commission income, that is pretty straight forward. It needs to occur for two years, not like 23 months, not 20 months. It really needs to occur for 24 months. I have been granted exceptions in the past, but really it is tricky and it has to make sense. Maybe you’re working bonus you are receiving bonus instead of commission. We’ll kind of work something out with the underwriter.
It also depends on, too, the rest of the file. How strong is your income? How much residual income do you have? Maybe you have a family member that’s not going on the home loan. That’s contributing to the household income. Maybe you have a substantial amount of reserves. There’s a lot of ways to qualify that you could figure things out if you know how to approach it, structure it, and sell it. Selling loans is selling. I call it selling, but basically it’s structuring, giving the underwrite.
Reasons to believe in the file, substantiated by evidence. That maybe they don’t think of. Maybe when the file gets all closed out and this underwriter was super aggressive on the income. Like I am a lot of times. Maybe they are super aggressive but they didn’t have clear documented. Explanations in the file when FHA went to review it. I’m all about making my underwriter’s job easier so that they can see that picture as clear as possible. I’m all about breaking it down. Giving evidence of why things happen, and writing letters and stuff like that.
Now, what if you were a W2 person and you’ve been W2’d in the computer industry for the last five years. And you got a really great opportunity to get a job promotion, but it’s going to be 1099? What about that? Basically how you can look at that is. If you go from W2 to 1099, even though it’s the same line of work. Now you’re technically what’s called a self-employed person. 1099 income is basically you make four thousand dollars. They give you four thousand dollars. They don’t take out the FICA. The federal tax, the California taxes. Then, you’re going to file a Schedule C. Because we don’t have any history of you making that 1099 income. Even though same line of work. Maybe it’s even for the same company and you’re working for them as a contractor, but it’s not gonna fly.
What about if you’ve been a 1099 self-employed person. You’ve been filing your Schedule C and let’s just say you’re making $75,000 pretty regular. Just really basic regular credit scores. You’re doing 3.5% conventional and now you’re going from 1099 Schedule C, self-employed, and you’re going to be a W2 wage earner. Well, in instances like that, it’s not like oh, snap my fingers. You’re approved and qualify. There’s a lot of other stuff that goes into it. A lot of times, if it’s reasonable, we can make that happen.
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If you were making $75,000 1099 and then, now, on your W2 job you’re making $200,000. That’s a bit of a stretch and there is lot of other things to consider. You go from 1099 self-employed Schedule C, $75,000 a month and now you’re gonna make. I don’t know, $90,000 or $100,000 W2. Well, that’s pretty reasonable, right? That’s not way more than you were making before. That’s kind of in line. It’s when things are really out of the norm. That it brings questions in and we have to substantiate whether or not that’s a suitable risk for the lender. For me, the lender that’s arranging. I’m called a third-party originator, for the lender that’s arranging these loans.
I want to let you, I’m really looking to help as many people as I can. So if you know anybody out there that’s looking to purchase a home and be qualify for home loan. Sell a home, or refinance a home. I sure would appreciate it if you could pass my information along. With that being said, if there’s anything that I could do for you. I certainly would love to have you give me a call at 909-920-3500 and speak with me personally.
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We can hash out some of these issues. In another income video I’m gonna go over the Schedule C ’cause there’s a lot of intricacies. I think that’s probably one of the biggest misconceptions is when people are self-employed. And file a Schedule C, they just don’t understand why they don’t qualify. They’re doing very well. They have all of this income, nice car and they call us and they’re not worried about it. They’re not worried about the financing at all, and then we give them the news, “Yeah, you don’t qualify. Sorry.” I wanna go over that in its own video.
One thing that’s come up on W2 people, what if your company is super cool and they give you an $800 SUV allowance on. I’ve seen the new Lincolns. They’re super cool. Maybe a $1200 auto allowance. You’re a sales person. You’re a fancy sales person and you need to represent. They pay for that auto. They also give you some mileage and some meals. Think of it like this, if you don’t claim that on your taxes, we can’t use it. In addition, that’s a reimbursement type of activity where it doesn’t show up anywhere as earnings or income. It’s kind of like, “Go out and go spend $50 and we’ll reimburse you.” There’s not really a way to quantify that. Even though if it’s a benefit that you’ve been receiving for many years, no lender are going to allow that reimbursement to be able to calculate in income.
Whenever I calculate income, I usually take the path of least resistance. Let’s just say you qualify using your base income. But you get a bonus and overtime and all this other stuff. Well, if you qualify using your base income, then I don’t even worry about. I don’t even hassle the file or hassle documenting or validating all these other things. If you qualify with that base income, let’s do it. Let’s go to town.
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When I’m qualifying someone. I’ve had people where I look at their income. They make really great money, and then I go. I write down the 2016 W2 earnings. I write down the 2017 earnings and then I write down the year-to-date and then I average all that and I come up with one number. Then I might take the 2017 and year-to-date. I come up with another number. Then I come up with my year-to-date and I look at my year-to-date and it’s way less, significantly less, than when I averaged all three together. Maybe they were off for a period of time and that’s why the year-to-date earnings are so low. Maybe they were injured and we have to document and injury. There are some instances where you are making this base income and we can’t give you the entire base income based on a history.
When you are looking to a buy a home. Which is one of the most important financial decisions that you can make. Don’t just leave it up to chance that the person you’re working with is gonna know how to help you in the best manner possible. You really wanna be working with somebody that has a breadth of experience. Someone that’s a problem solver. Somebody that’s not a pansy that will roll over and let people tell them when a loan is a loan. Nobody tells me when a loan is a loan. With no rep well, they may influence me and say, “Hey, you’re being a little bit aggressive.”
That’s when my relationships with these lenders is so valuable. I have these inside reps, because you know I’m a mortgage broker. I’m a wholesale lender, so I go direct to the money. I don’t have a middle man and I don’t have a big office. I have a smaller office, a smaller staff and have access to wholesale rates, so I can pass those rates onto my consumer. In that office, in that wholesale lender office, I have what’s called a wholesale rep, a liaison. These reps are crucial to my success. The profile of a wholesale rep is someone who has been around for 20 years. They do a tremendous amount of volume.
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If you have an obscure question on FHA, VA, conventional, structuring, often times, I have my success. Yeah, I’m a problem solver. I know how to figure things out. But I’m also, I rely on other smart people to help me. Sometimes we can’t figure it out by yourself. I’ll sit down with my wholesale rep and we’ll brainstorm and she’ll come up with something or he’ll come up with something. I’m like, “Yeah, that’s the way, that’s my angle and that’s my in. That’s how I’m gonna have success on this loan.” I forget where all that came from.
Jocelyn, do you know what I was talking about? I think we were talking being aggressive with income. It’s really knowing when you can push something and when you can’t. I always like to take the path of least resistance, but we always wanna have success, too, so we’re gonna push. We’re gonna charge and we’re gonna probably annoy some people, but you know what? We’re gonna win for you.
If you’re looking to buy or sell in Southern California, pick up that phone and you call Teresa Tims at 909-920-3500. We sure are looking to hear from you. Okay. You all have a wonderful day and I can’t wait to hear from you.