Proof of Income!

What qualifies as income when applying for a mortgage?

Several years ago I had a client who worked as a pastry chef who applied for his first mortgage. I asked him several qualifying questions to gather information to help him with the pre-approval process, questions such as how long he had been working as a chef, what were his available assets, and how he was compensated for his work. Was he paid hourly or salary? Was he self employed, or did he work for someone as an employee? My client stated he was not self employed and was paid a salary. I asked if he had any other income, other than the salary he received. His answer was no.

My client wanted to purchase a home priced much higher than his income could afford. His credit was outstanding, and he had a steady employment history. I set an appointment to meet with him in person. I asked him to bring some documents for my review, including his tax returns for the prior two years.

I learned a long time ago about asking questions. Sometimes it is not the question I ask but what is interrupted by the other people that determines the answer they give back.

In my client’s answer, his interpretation to my income question was that he received only his salary as his yearly income, yet after reviewing his taxes, I saw that he had the great fortune of winning the lottery not once but, yes, twice. He did not consider his lottery winnings to be income, but they were, based on the fact that the lottery payments were paid out like an annuity, which meant that they were going to continue for several years to come.

The most important issues with income are that the income can be documented and that it will continue in the future.

These are examples of other acceptable income sources that can be used in the mortgage process:

There are many different acceptable forms of income documentation. Proof of each source of income that is counted must be included with the application. A brief list of documents that can be used to prove income include the following:

Applying for a mortgage can be intimidating and sometimes overwhelming, but if you have all the right documents prepared ahead of time the process will go much smoother and faster. Generally, the more documentation you give to your lender, the less risky the lender considers your loan.