Qualifying Income

When a lender is making a decision whether to approve a home loan they use various methods to arrive at the “qualifying income” figure. For self employed people this is a monthly average of net income derived from the past 2 years of filed income tax returns.  For wage earners, the figure is derived from the last 2 years W-2 forms and the current paystub.  For those retired or with income from social security, a pension, or annuities, the income must be shown to continue for at least 36 months.  When using interest and dividends, the underlying assets must be proven to still exist.  For investors with rental property, the net income is calculated using 75% of the rent, then deducting mortgage, tax and insurance payments.