One of the biggest problems being faced by both potential buyers and homeowners seeking to refinance is being able to prove that they have enough income to be able to meet the payments.
Meeting the income requirements of your bank is no easy thing, as the whole process can be incredibly complicated, reports Scripps News. Therefore, both homeowners and buyers should bear the following in mind:
Firstly, the only income that counts as far as your banks are concerned is taxable income, a requirement that can cause problems for numerous self-employed people and others who have to deduct business expenses when filing their tax return. Expenses for things such as mileage, meals and entertainment won’t be counted by the bank, so be sure to take this into account and have all of your expense-related information ready.
Banks will look back over a two-year period to evaluate your income, but this doesn’t necessarily mean that you should have been employed for two consecutive years. The main thing that banks want to see is that the income you have now is going to remain at the same level, and so long as gaps in employment are explained adequately, this shouldn’t be a problem.
The debt-to-income (DTI) ratio is the main factor in whether or not the bank will think you can afford to repay the mortgage. Once the lender has established that a borrower’s income is regular and likely to remain the same, they will then look to the DTI to decide. Unfortunately, the DTI is fairly conservative these days, with banks usually requiring a score of no more than 45%, compared to the 60% to 65% we saw just a few years ago.
Those who have especially strong credit scores, or buyers that can make a significantly large down payment may find some wiggle room in terms of the DTI, but unfortunately banks are not very flexible when it comes to income qualification.
Source: Scripps News