When my dog Kevin was issuing pre-approvals based on Desktop Underwriting (DU) findings only, one of his biggest mistakes was not verifying “Income Continuance.”
Income Continuance
Lenders cannot use Child Support, Alimony, Disability, or Retirement income unless they have proof that it will continue for a minimum of three years after close of escrow.
For example, if a woman receives child support that ends when her kids turn 18, we cannot use that income if her kids are aged 16 and 17; her child support will not last three years.
Likewise, disability income needs to be permanent or we require a doctor’s letter indicating disability (and related income) will continue for three years or more.
We also need to prove that retirement income will come in regular distributions that will last for three years or more (some borrowers prefer to just withdraw funds on an “as needed” basis but that will not work for qualifying purposes; we need a set distribution schedule).
As a related topic, employment verifications do not need to guarantee continued employment for three years, but they cannot indicate a pending retirement less than three years from now. If they do, we cannot use the income from that employer.
Using Vacation Rental Income To Qualify – Gotta Be On Tax Returns
Vacation rental buyers and owners cannot use future rents to qualify no matter how strong the vacation rental market might be.
Vacation rental owners can only use vacation-rental-income to help qualify for a mortgage loan if the income is clearly shown on tax returns.
Lenders can get by with income on only one year of tax returns for Fannie Mae (conforming) loans, but they will need to see income on two years of returns (to show a sufficient “history”) for most other types of mortgage loans.
Things may change as vacation rentals become more and more common, but right now – it’s all about a borrower’s tax returns.
How To Qualify With Irregular Income
If you have irregular income, qualifying for a mortgage can be difficult. Working with a reputable and local mortgage lender can help you review your finances and find a solution that works with mortgage financing guidelines. Borrowers with irregular types of income should bring as much documentation as possible when trying to establish income continuance with their lender. Lenders will often ask borrowers to provide any business write-offs, tax returns, pay statements, and bank statements. These documents are used to help establish a debt-to-income ratio and begin the process of establishing qualifying income continuance.
Questions? Contact JVM Lending To Learn More
This blog covers just some of the basics about establishing income continuance. To learn more about income continuance or to discuss your homebuying and mortgage financing options, contact our team by phone at (855)855-4491 or by email at [email protected]. Our team is available seven days a week and are experts at helping homebuyers navigate the mortgage process.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
