Income You Can’t Use to Help Qualify

Written by Posted On Tuesday, 07 May 2024 00:00
Income You Can’t Use to Help Qualify Image by Tumisu from Pixabay

When researching how to qualify for a home loan, there is plenty of information about income that can be used to qualify when calculating debt-to-income ratios. Income from your job certainly qualifies. Part-time income might be used if there’s a two-year history of receiving it and the lender has made the determination the income is likely to continue. Self-employment income can also be used yet it also falls into the history and likelihood of continuance categories. But what types of income typically won’t be counted when qualifying for a home loan?

We mentioned part-time, or “gig” income. Side hustle. Lenders want to see a history of that income for at least two years. Doing so helps the lender validate the income is coming from a reliable source and is continuous, without any gaps.

Occasional income, income that doesn’t come in on a regular basis can’t be used, either. Again, the income must be verified to have a stable, two-year history. Getting additional income on the side in bits and pieces won’t be counted. Yes, you might be able to show you’re getting it, but ‘every now and then’ income can’t be counted because the lender can’t be certain when you’re going to get paid next. Income has to be available to service monthly credit obligations. Occasional income, while you might be getting it, can’t count.

Financial help from a family member, while certainly a blessing, can’t count either. Sometimes those who are just starting out on their own get some financial assistance from Mom and Dad. Again, while the income is certainly there and verifiable, a lender understands that at some point, Mom and Dad are going to put a stop to it. Mom and Dad have bills, too, you know.

Finally, any income that can’t be ‘sourced’ can’t be used. Someone might state that there is additional money coming in but if the source can’t be traced and verified, it won’t be used. Are the extra monthly funds a loan? Will it ultimately have to be paid back?  ‘Ghost’ income won’t even get to the starting line, much less finish.

In general, if any income, regardless of where it comes from, does not have a verifiable history and cannot make the case that it will continue well into the future, it can’t be used. 

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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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