Ways to document your income for a mortgage

Victor Polich
Posted by Victor Polich
Mortgage Banking

Applying for a mortgage is an exciting step but also requires sharing a lot of information with your lender. Since your income is a primary consideration when it comes to qualifying for a mortgage, lenders will go through your personal finances with a fine-tooth comb—looking for assurances that you’re able to repay your loan.

African-American couple sitting on couch and reviewing their finances.When you meet with a lender, plan on providing at least two years of income documentation. Common types of income that can be used to qualify for a mortgage loan include W2 income, other income such as overtime and commissions, and self-employment or retirement income.

Here is more information on these and the documentation you’ll likely be required to produce:

W-2 income

Gross income is based on your salary or is calculated using your hourly rate multiplied by the average hours you work. This figure is compared to the year-to-date (YTD) earnings reflected on your pay stub and W-2s for the previous two years to ensure your income isn’t understated or overstated.

Required documentation: Pay stubs covering a 30-day period with YTD income and deductions, as well as W-2s for the most recent two years.

Overtime, commissions, bonuses, and K-1 income

A two-year history of overtime, commissions, bonuses, or K-1 income for S corporation shareholders must be present to be considered as qualifying income. In addition, your employer must state that overtime, commissions, or bonus income is likely to continue.

Required documentation: Pay stubs covering a 30-day period with YTD income and deductions, as well as W-2s and signed federal tax returns (with all schedules and 1099s) for the most recent two years. Items reflected on Form 2106-Unreimbursed Employee Expenses are treated as a reduction in income.

Self-employment income

To qualify as self-employed, you need to be employed by a relative or have a 25% or higher ownership interest in a business. Your lender will analyze your tax returns to determine the basis for all self-employment income calculations.

Required documentation: Two years of signed personal and business federal tax returns with all schedules and K-1s. Any unusual, one-time expenditures should be addressed in writing by your income tax professional.

Other income

For child support or alimony, you need to provide a copy of your divorce decree or court order reflecting any agreed-upon child support and alimony payments as well as proof that those payments will continue for at least three years. Required documentation must show that income has been consistently received for at least six months.

If you’re in retirement, be prepared to produce a copy of your award letter, 1099, or equivalent documentation showing income type, source, and amount, plus two months of your most recent bank statements or other equivalent documentation demonstrating consistent receipt of retirement income.

3 final tips

If I could share just three tips with you on this subject, they would be this: Document, document, document! It’s important to stay organized and maintain a paper trail, since your income will be scrutinized in great detail by underwriters. Also, if you happen to have a unique—but dependable—source of income, be prepared to provide a detailed letter with supporting documentation if you wish to have that income considered.

Reminder: All comments are moderated prior to publication and must follow our Community Guidelines.

Submit an Idea

[contact-form-7 id="32" title="Share An Idea"]

You are leaving the Bank of the West Change Matters site. Please be aware: The website you are about to enter is not operated by Bank of the West. Bank of the West does not endorse the content of this website and makes no warranty as to the accuracy of content or functionality of this website. The privacy and security policies of the site may differ from those practiced by Bank of the West. To proceed to this website, click OK, or hit Cancel to remain on the Bank of the West Change Matters site.