How do you prove your income to an underwriter?

How is useable income calculated and what sort of documentation do underwriters typically require?

This answer can vary greatly depending on your employment status. Are you self-employed? Are you an employee of a company? Are you retired? Let’s look at the characteristics of each.

Self-Employed
If you are self-employed, there are several different tax structures that you might choose for your company. You might elect to be treated as a C-Corporation, or an S-Corporation, a Limited Liability Company (LLC), or a sole proprietorship. For the sake of simplicity, we will include independent contractors (those receiving a 1099) in the self-employed category. Your company organization and tax structure will ultimately determine how you verify your income to an underwriter. However, in general you will want to plan on producing signed business and personal tax returns with all supporting schedules for the most recent 2 years. For self-employed borrowers, an underwriter will use the adjusted gross income reflected on the tax returns to calculate the debt-to-income ratio.

Employees
If you are an employee of a company, plan on providing your W-2s for the 2 most recent years and paystubs to cover the most recent 30 days. An employee’s income is the amount listed on the W-2 as gross wages.

Retirees
Retirees living on a pension or social security benefits will likely be required to show proof that the benefits will last a lifetime (typically a letter from the awarding authority will suffice). They may also be asked to show a paystub to cover the most recent 30 days. Retirees use the total income reflected on their W-2 or reward letter. For social security benefits and benefits that are not taxed, underwriters will calculate income using 125% of the monthly income. In other words, if your benefit is $2,000/month, the income you will list on your loan application is $2,500 ($2000 x 1.25).

For additional documentation questions check out
the loan checklist at http://noblelenders.com/checklist.php