MORTGAGE 101

by Mike Miles

 

Every Tuesday in the Shawnee Mission Post

 

Your Mortgage: How to qualify for a loan without a regular salary

 

by Mike Miles

September 12, 2018

 

There are several ways in which employees can be paid. For those that are paid a straight salary, qualifying for a loan is pretty straight forward … underwriting would simply verify the amount of the salary and obtain verification that employment is current. But what about those that aren’t paid a salary? What about employees that count on tips for income? What about employees paid for contract work/per job completed? What about employees paid hourly wages where the number of hours worked vary? I’ll provide a brief description below for these types of employees.

 

Employees paid primarily with tip income:

Anyone fitting into this category will need to bite the bullet and claim tip income to the IRS as earned income. The downside of this is a possibility of an increased amount of income tax owed. However, claiming the income will increase buying power. Depending on an underwriting approval, either one or two years of tax returns will be needed to document this income.

 

Employees paid for contract work:

Borrowers that are paid for contract work are most likely paid with a 1099 (independent contractor). This is where someone is paid without having any tax withholdings deducted. This type of employee is required to pay taxes on their own, which makes them similar to self-employed borrowers. In some instances, salaried employees will change to contracted employees. Despite the employee possibly doing the same type of job, the fact that it’s paid as contract work instead of salaried work requires one or two years of tax returns to document the amount of income claimed. Claimed income is used for qualifying for this type of borrower.

 

Employees paid per hour:

Hourly-paid employees are qualified based on averaging 12 to 24 months of earned income. In some situations, these types of employees are guaranteed 40 hours a week. That makes it easy as underwriting will use the hourly rate multiplied by the guaranteed hours. For employees that aren’t guaranteed hours, that’s where averaging comes into play. These employees also may have shift differential and overtime paid to them. That additional income can be used if it’s documented to be considered normal and/or likely to continue.

 

If you’re thinking about buying or refinancing a home and you fit into one of these employee categories, it would be a good idea to have an initial loan consultation. This will help you understand if you qualify on your time table or if you need to wait until qualifying guidelines are met.

Mike Miles is one of the owners of Fountain Mortgage. You can find his column in the Shawnee Mission Post every Tuesday.