Qualifying for a mortgage is perhaps the foundation of home ownership. Most people who want to buy a  home will first seek out financing options. Some can choose to pay cash, if they have it, maybe from the sale of a previous home. Otherwise, getting a mortgage will be on the docket.

When speaking of qualifying, lenders want to and must determine ‘affordability.’ There are a very few mortgage programs that ignore income and debt but instead look at credit scores. But determining affordability compares income with expenses count?

Expenses that are counted include items that would likely appear on a credit report. For example, a car loan would be counted in most cases. Some lenders ignore such installment loan payments if there are less than 10 months remaining on the account. A revolving credit card account will also be counted. Lenders will look at the credit report to determine what the minimum monthly payment is expected.

 Even if the borrowers pay more than the minimum amount required, whatever is listed on the report will be the monthly payment used to determine affordability. Borrowers can document overpayments or even paying off the entire balance completely, provide that information to the lender and the lender may be able to override what appears on the credit report. Day to day expenses such as food, gas and utilities are typically not something that is chalked up as a debt used to help qualify.

Now the other side of the coin: income. It might seem a no-brainer to figure out how much income can be used for qualification purposes. After all, providing a paycheck stub and maybe tax returns is sufficient to document qualifying income, correct?

Mostly, yes,  but there are some requirements to determine which income can qualify and which can not. Typically, income needs to be documented to have at least a two year track record. This documentation typically comes in the form of the past two years of W2 forms, or in the case of someone that gets self-employment income, the last two years of personal and business tax returns may be asked for. As well, the income must come from a verified source.

Part time income? Yes, if again there is a two-year history of receiving it and proper documentation provided. What might not pass muster is an occasional deposit of income, even if from a verified, approved source. Lenders want to make sure all income received can be properly sourced. If so, that income can be used to help qualify for the new mortgage.