Taking a Closer Look At Your Paycheck Stub

Written by Posted On Monday, 01 August 2022 00:00

When you first submit your loan application, it's likely the mortgage company is going to ask for a copy of your paycheck stubs. The pay period needs to cover at least a 30 day period so the number of stubs you'll need to submit will vary based upon how often you get paid. Weekly, every other week, the 1st and 15th and so on. When lenders evaluate affordability, they use your gross monthly income, not your take-home pay. Your pay stub will also reveal all your withholdings and whether or not you contribute to a 401(k). Your pay stub must also cover the most recent 30 day period.

First, your paycheck stub will not just show your gross monthly income but also your year-to-date earnings. Your gross monthly income should match  up with how many months so far in the year there are. If for example it's October and you get paid $5,000 per month, your year-to-date earnings should be $50,000. If year-to-date earnings are lower than that the lender will need to know why. Your income needs to be consistent and your pay stub will reflect whether or not the income is regular and won't pause.  

Full time is counted whereas part time, where less than 30 hours per week is documented, may not. Further, if you've just changed jobs, the lender won't use the paycheck stubs from your previous employer. You'll need to wait at least another month in order to receive your monthly stubs and while most companies have a two week wait period before issuing checks, there will be some additional time added.

A paycheck stub may also show bonus or commission income. But there are some guidelines when bonus or commission is listed on the paycheck stub. First, the income must be regular in nature. For example, bonuses might appear once every quarter or once every month. An annual Christmas bonus won't be counted because the likelihood of that bonus money hanging around in the summer is unlikely. There also needs to be a two year history of receiving it. If this income needs to be included in order to help qualify, you can expect to provide at least two years of W2s and sometimes even income tax returns. With commissions, tax returns will be required and reviewed to see if there are any business expenses deducted from the returns.

One thing to note here is that the paycheck stub must be computer generated. Some smaller companies still write their checks by hand. In this instance, the lender will ask for further verification of income typically by contacting the employer directly using a Verification of Income and Employment request.

Finally, someone who is self-employed may not always have generated paycheck stubs. Self-employed people may not pay themselves on the 1st and the 15th but pay whenever the money comes in. Again, in this instance, tax returns will be needed.

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David Reed

David Reed (Austin, TX) is the author of Mortgages 101, Mortgage Confidential, Your Successful Career as a Mortgage Broker , The Real Estate Investor's Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. As a Senior Loan Officer and Mortgage Executive he closed more than 2,000 mortgage loans over the course of more than 20 years in commercial and residential mortgage lending. 

He has appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show. His advice has appeared in the New York Times, Parade Magazine, Washington Post and Kiplinger's as well as in newspapers and magazines throughout the country. 

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