How Important is a Borrower's Income in Getting a Home Loan? What Kinds of Income Qualify?

Now that a borrower cannot rely on a Stated Income loan to purchase or refinance their home, many borrowers are simply "out of luck". In this marketplace Income Is Now King. Furthermore, self employed income can also be problematic, because when a self employed person subtracts the tax deductions they legitimately can take to lower their tax burden, they might not show enough "net" income to qualify for a loan. Therefore w2 income is the income that is Most Valid in this lending marketplace.

If, however, after taking your legitimate deductions as a self employed person, you can show a "net" income that is sufficient enough to qualify for a loan, then you may also purchase a new home or refinance your old lien.

Generally speaking if a borrower earns say $3,000 per month then they should be able to borrow up to $1,350 per month in a mortgage payment. However, this $1,350 must not only cover their principal and interest payment, but also a monthly calculation of their property taxes and insurance. This calculation represents about 45% of a borrower's gross income.

Remember, self employed individuals are not allowed the benefits of a w2 employee. To qualify, they are only allowed to borrow up to 45% of their "net" income or income after deductions.

This first calculation of 45% is used towards a borrower's principal, interest, monthly property taxes and insurance payment (PITI). There is however another calculation required to complete the lending process and that is the total debt to income ratio. This calculation adds up not only the PITI, but also includes credit card debt (minimum monthly payments), auto loans, boat loans and any other debt indicated on a standard credit report. This accumulated debt must not exceed 50% of the borrower's income or lenders might reject the loan request.

For borrowers who have over 50% total debt to income ratios, other compensating factors will determine their success or failure. Most important among these are credit score - where anything over 720 points will increase a borrowers chances. Second - accumulated assets will also help a borrower achieve success, whereas if a borrower is has over $30,000 in accumulated assets - money market accounts, cds, stocks, etc. this too will help their chances.

In a market environment where interest rates are so low and refinancing can be such a sound financial decision, it's important to know whether you can qualify under the new tough qualifying guidelines of todays marketplace. I hope that this can help you decide if you have what it takes to qualify for a new home loan.

My name is Allen Sayble and I have been a loan officer since 2001. I specialize in hard to find loans through FHA and USDA for borrowers with less than stellar credit, or who want to borrow over 80% of their home's value. I also enjoy helping borrowers in sound financial positions. You have worked hard to keep your credit strong and keep your financial ship moving in the right direction. In return I will work hard to get you the best interest rates the industry has to offer.

Although I am based out of Ashland, Oregon and can help you finance Oregon Home Loans, I am also capable of completing California Home Mortgage Loans. Please visit my website at http://www.mortgageconsumer.com to learn valuable information about the loan business and receive a FREE mortgage loan analysis. You can also contact me at 541-324-9623.

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