When you apply for a home loan your lender is going to look at three key components for determing your Usable Income, the number we use to qualify clients on their application. This is the number we take from the last 24 months (two years to the date) and compile the gross income needed. The number doesn’t matter if it doesn’t also meet these three requirements:

1. Stability- No matter how high your income shows it needs to show it’s consistent and has been ongoing for the last two years thus far. If your past income looks like a rollercoaster or you had one big check issued but that kind of income hasn’t been a regular figure in your past income history, it’s not a usable figure as stated income. You need to show a consistent flow of income every month.
2. Predictability- A lender needs to be able to look at the income numbers you provided and see that your future checks will support the numbers you’re claiming on your application and show that over the last two years, there’s an obvious trend of similiar income that supports what you’re stating as your monthly income and salary figures. If your income is all over the place, lenders take an average of the last two years and that means one big pay day gets leveled out to the rest of your typical income and could show risk to the lender that might even be a red flag despite it being a big pay day. If your income is not predictable for the upcoming months then it’s hard for lenders and banks to back that because who knows if you’re actually going to make similar money or any at all if you can’t even show for the current year this is a regular occurrence.
3. Likeliness to Continue for the Next 3 Years- This is where a couple of big pay days and the first two factors can make or break you. If you’re commissioned or self-employed and you don’t gross a typical amount but you made a few big sales, it’s still factored in total and divided out. If your statements don’t show you consistently make good money on the regular then you probably won’t for the next three years. If you do have consistent income and a good monthly income, you need to be able to show that your income is likely to maintain for the next three years as it did the past two. Contract work or someone working for a company going under, would need their future lined up for this to work and a Verification of Employment (VOE) will need to concur with this. Whatever your situation, it needs to be likely to be the same situation three years from now at least, if not better.

Many factors also play into these 3 components like the company itself, the economy of the job, the nature of the work, the industry, the overall economy, etc. If you’re making good money for a company going out of business, will you be in the same line of work at a new company and have a job lined up? Are you possibly going to be looking for a job soon or taking a pay cut? What about a different position? If you’re in a business where that industry is going through a major slump or potential drop off, that can affect you in underwriting because of the volatility of the work you’re in and what’s happening around it. The same goes for the economy if you’re in commission, sales, etc and the economy is tanking. If you’re an ER nurse or doctor, then that’s different than someone who sells luxury homes or is a contractor for a home builder in times like these. This is why underwriting is so precise and takes time. So much is considered before being approved. These are just the basics that every application must have at minimum. In the end, you need to be able to price a 5 year history of solid income that’s pretty level and can be proven.