One of the most important factors when seeking a loan is your debt-to-income ratio. Whether it’s car loans, mortgages, or business loans, lenders want to see a healthy ratio with less debt and more income. In most cases, the lower your debt, the better. In all cases, the higher your income, the better chances you have at qualifying for a loan.
Are you utilizing all of your income sources when you apply for a home loan? Is it possible you are forgetting a potential income source because it’s not part of your regular paycheck?
Unfortunately, there are many Americans who simply leave qualified income on the table and don’t utilize it towards their loan. This can mean less available loan money, higher interest rates, or even non-qualification.
To get the best loan, you have to use all your available sources, so browse our list of common alternative income sources for your loan qualification. Specifically, these are sources of income that can be used on loans from Fannie Mae, but many other lenders and organizations will recognize these sources as well.
With this information, you just might discover that your unused sources of income are the keys to a better, more-affordable mortgage loan.
Alternative Income Sources for Loan Qualification
Alimony or Child Support
To use alimony or child support as a source of income, you must provide documentation that the income will continue to arrive for at least another three years. For Fannie Mae loans, you must provide a copy of the divorce decree that indicates payment, or provide any type of legal document that specifies alimony. Be sure to check for limitations, such as the child’s age, and document at least six months of regular receipt payments.
If you receive a payment from work for car or truck expenses, you can add this to your available income when you apply for a loan. However, you must have received this payment for at least two years to use it for Fannie Mae loans.
Although income from capital gains is not a regular income, and can easily change from year to year, you can use it as a source of income to qualify for a loan. However, if you rely on the income from capital gains as a regular income, you may actually be able to use it. You will need to provide thorough documentation, including a two-year history of capital gains with IRS forms.
Many people across the country use disability payments as their main source of income. To use it as an income source when seeking a loan, it must be long-term, not short-term disability. You must have a copy of the disability policy from the payer, which can be your insurance company or employer, depending on the specific situation.
Employment Offers and Contracts
You may not have even started the job yet, but under special circumstances you can actually use official job offers to qualify for loans. The lender will need a copy of the offer and information on upcoming wage or salary. In many cases, this will set the groundwork for a loan, but under special conditions, the loan can actually be delivered prior to starting the employment.
If you have a job that provides an income for your housing, you can use this as a source of income towards your loan. You must have documentation that the income was received over the last 12 months. There is an important qualification, however; you must also show that the income is likely to continue for the next three years.
Incoming Invoices and Contract Payments
Are you expecting to receive payments for a contract or service? Did you know that you can use this expected income to qualify for a loan? You’ll need to prove that the income can be expected, and it must be expected in three years or less. When you visit with a lender, bring a copy of the contract that establishes the amount and length of payment, as well as regular receipts of income from the past 12 months.
Retirement and Pension Income
Millions of Americans across the country have their main income from retirement or pension payments. These can be used as a source of income, but you must document the payments with letters from the source organization, copies of signed federal income tax returns, IRS forms, or proof of current receipt. If the income is paid in the form of a 401(k) or IRA, you’ll have to show that the income is expected to continue for another three years.
Social security provides a financial safety net for Americans all across the country. If you are one of these people and want to use this as an income source for a loan, you’ll have to verify the payments with special documents. You can use a variety of social security payments, including retirement, disability, survivor benefits, and supplemental security income.
If you work for tips, even as a small portion of your income, you should use this as a source towards your loan. Unlike a common wage or salary, you’ll need to demonstrate that you have received this tip income for at least two years, and the lender will consider the amount that may be considered for income in regards to the loan. You’ll need recent pay stubs, as well as IRS forms and other documents that verify your tips.
If you receive money from a trust, this can be used as income for your loan. You’ll have to confirm the trust income through a copy of the agreement or the trustee’s statement, and this document should include the amount, duration, and frequency of payments. (For example, that you receive $500 every month for the next ten years.) To qualify, the trust will need to continue for at least three more years.
If you receive unemployment benefits, you can use this income when seeking a loan. You’ll need to have received this income for at least two years and provide documentation of past payments. Unemployment compensation can only be used when it is associated with seasonal employment, and you must verify that this seasonal downtime is likely to continue.
To use your Veterans Affairs benefits as a source of income, you’ll need a document of the VA benefits with a letter from the VA. You’ll also need documentation that the benefits will continue for at least three more years.
Using these income sources towards your next loan can help you get the affordable housing you deserve!
“Chad and his group made the mortgage approval process smooth and understandable. Multiple updates and explanations during the process kept me informed of progress. Chad also provided great advice on other home services, in particular an insurance company that saved me thousands of dollars a year on home and auto insurance.”
I was referred to Chad by my Realtor for a purchase of a new house. The experience with Chad and the team (I mainly worked with Juliann) was nothing short of outstanding. From start to finish there were always quick to respond and when needed, notify me of any new documentation that was required. There were very helpful explaining to me the pros and cons of different financing options as well as some other loan related issues, such as termite clearance outside the purchase contact and septic tank certification process. Overall, very knowledgeable and processional team. Loan preapproval was done in a single day and loan documents were ready for signing in 21 days, which was 9 days ahead of schedule. That never happened to me before.
Incredible Turnaround and Stellar Customer Service. Chad and his team helped us get into our first home here in San Diego. When we first started the process we were skeptical it would even be worth applying. But Chad and his team walked us through the whole lending process with integrity and know how that surpassed our expectations. After helping us to pull together our pre-qualification, he and his team stayed at the ready. Before we even walked up to a home we were seriously interested in he had the data we needed over to us and our realtor. After finding the home we wanted to place a bid on, we were able to place a bid with a matter of a few hours. Then, after having our offer accepted, he had our loan package completed and the keys in our hands in under a month — I am pretty sure it was less than. Like I said, incredibly fast and professional turnaround. if you are looking for a motivated lender who can walk you though every detail and have your back every step of the way, Chad and his team at HomePoint Financial is your best decision. Recommend them highly!”