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When applying for a mortgage, how do lenders factor in year-end bonuses? My bonus is 10% of my salary so I really need it counted for my payment-to-income ratios. This is my first full year at the job.
Is the bonus tied to your individual performance or to company profits? If so, that complicates things.
You're also in a bit of a tough spot since this is your first year on the job ie: no history.
Ideally lenders like to see a bonus that is paid monthly, has a substantial history, and is guaranteed.
Hmm... wouldn't we all love a bonus program like that.
Personally, given tightening credit standards, I think getting it included might be a tough sell.
Maybe someone else will have more info and better news for you though.
2 year average is used. Doesn't matter what it is tied to.
Did you receive it last year, or this year will be the 1st? If this year will be the first you definitely will not be able to count it.
It's only 10%...are you sure you need it to qualify? With good credit we can go HIGH on the debt to income ratios these days. What do you calculate your DTI at with the proposed PITI payment + all your MINIMUM monthly payments due?
I did receive a bonus for 2006, but it was pro-rated (I started in Sept).
Not sure If I definitely need the bonus to qualify. So far, I've just been playing with online affordability calculators- haven't spoken to any lenders yet.
Based on the townhomes we like, our front/back ratios without the bonus would be 32/38. We have a 5% down payment and credit scores of 770+.
2 year average is used. Doesn't matter what it is tied to.
Personally I think that's crazy; and we wonder why so many people can't make their mortgage payments. Granted the problem is a lot more complicated than lenders allowing income that may or may not be available to be counted as a given, but still...
Most bonus programs I know of are tied to performance, either individual or company, so you could conceivably get a substantial bonus 2 years in a row but get absolutely nothing year 3, so not exactly financially conservative to count on that income.
FWIW, when we applied for a loan 7 or so years ago we were told the standards I posted above were the norm. Guess it goes to illustrate how lending standards have changed.
Good Luck with the financing Blue
Hopefully you'll qualify for the perfect place even without the bonus $$$
I did receive a bonus for 2006, but it was pro-rated (I started in Sept).
Not sure If I definitely need the bonus to qualify. So far, I've just been playing with online affordability calculators- haven't spoken to any lenders yet.
Based on the townhomes we like, our front/back ratios without the bonus would be 32/38. We have a 5% down payment and credit scores of 770+.
That should be NO PROBLEM at all. They won't need to count the bonus income for qualifying.
If you are talking a loan amount under $417k you could probably get approved at about 45/55 (front/back) and even higher if you have some reserve funds (funds left after closing including 70% of retirement account balances).
Personally I think that's crazy; and we wonder why so many people can't make their mortgage payments. Granted the problem is a lot more complicated than lenders allowing income that may or may not be available to be counted as a given, but still...
Most bonus programs I know of are tied to performance, either individual or company, so you could conceivably get a substantial bonus 2 years in a row but get absolutely nothing year 3, so not exactly financially conservative to count on that income.
FWIW, when we applied for a loan 7 or so years ago we were told the standards I posted above were the norm. Guess it goes to illustrate how lending standards have changed.
Good Luck with the financing Blue
Hopefully you'll qualify for the perfect place even without the bonus $$$
Problem is what would you do...just disqualify it all? Nothing is guranteed including that a borrower will even have employment in the future let alone a bonus.
This is the same system used for commissioned employees (2 yr. average). These people (ie loan officers & real estate agents) might not have ANY income next year. Should they (we) be excluded from buying a home when they have a track record of making income because the income is not "guranteed"?
Problem is what would you do...just disqualify it all? Nothing is guranteed including that a borrower will even have employment in the future let alone a bonus.
This is the same system used for commissioned employees (2 yr. average). These people (ie loan officers & real estate agents) might not have ANY income next year. Should they (we) be excluded from buying a home when they have a track record of making income because the income is not "guranteed"?
It's my impression that consistency and stability of income is the key here, and since most bonus plans are considered discretionary, I'm not sure how you can really establish that?
So yes, I would take the conservative approach and not count bonus $$$ period.
On a personal level I have never disclosed potential bonus money on a loan app. Good thing too since I doubt the turkey and gift certificate we got in lieu of cash when the company had a particularly rough year would have helped pay the mortgage.
FWIW that was after 3 years of receiving the max bonus available.
As I understand it, it's not uncommon for lenders to ask for a longer history in order to analyze stability if commissions vary drastically, and that's in addition to averaging that income.
Since you brought it up... probably a really good idea in the case of many RE/lending professionals given current market conditions in many places actually.
Our RE agent had no problem sharing stories of folks in trouble (many of them in the RE/lending profession themselves) in her periodic doom and gloom reports when our house was on the market. These reports were always followed with the suggestion to price accordingly btw.
Granted nothing is a sure thing, but if someone can legitimately afford the house they get into it; hopefully they will be able to sell without too much pain should their situation warrant later, even in a down market.
Sorry to stray so far OT
I guess approvals at 45/55 or even higher and counting on income that could very easily not be there make me a little crazy given the fact that I thought lax lending standards were supposed to be a thing of the past.
they establish stability by taking a minimum of 2yrs.
If you didnt receive for the 2yrs consistently, then it can't be used.
Same thing applies to overtime, commissions, and self employment.
Quote:
Originally Posted by Axiom
It's my impression that consistency and stability of income is the key here, and since most bonus plans are considered discretionary, I'm not sure how you can really establish that?
So yes, I would take the conservative approach and not count bonus $$$ period.
On a personal level I have never disclosed potential bonus money on a loan app. Good thing too since I doubt the turkey and gift certificate we got in lieu of cash when the company had a particularly rough year would have helped pay the mortgage.
FWIW that was after 3 years of receiving the max bonus available.
As I understand it, it's not uncommon for lenders to ask for a longer history in order to analyze stability if commissions vary drastically, and that's in addition to averaging that income.
Since you brought it up... probably a really good idea in the case of many RE/lending professionals given current market conditions in many places actually.
Our RE agent had no problem sharing stories of folks in trouble (many of them in the RE/lending profession themselves) in her periodic doom and gloom reports when our house was on the market. These reports were always followed with the suggestion to price accordingly btw.
Granted nothing is a sure thing, but if someone can legitimately afford the house they get into it; hopefully they will be able to sell without too much pain should their situation warrant later, even in a down market.
Sorry to stray so far OT
I guess approvals at 45/55 or even higher and counting on income that could very easily not be there make me a little crazy given the fact that I thought lax lending standards were supposed to be a thing of the past.
It's my impression that consistency and stability of income is the key here, and since most bonus plans are considered discretionary, I'm not sure how you can really establish that?
So yes, I would take the conservative approach and not count bonus $$$ period.
Well good for you. Luckily we don't care what you think we should be doing. How do you know a borrower is going to have a job at all next year or the next?
As I understand it, it's not uncommon for lenders to ask for a longer history in order to analyze stability if commissions vary drastically, and that's in addition to averaging that income.
Since you brought it up... probably a really good idea in the case of many RE/lending professionals given current market conditions in many places actually.
It is this statement that has my responses a bit on the harsh side. So you think the people who work hard and earn a living assisting others attain homeownership should not be allowed to purchase their own home??? Do you know there are tens or hundreds of thousands of people making an excellent living in these posistions?
Our RE agent had no problem sharing stories of folks in trouble (many of them in the RE/lending profession themselves) in her periodic doom and gloom reports when our house was on the market. These reports were always followed with the suggestion to price accordingly btw.
Granted nothing is a sure thing, but if someone can legitimately afford the house they get into it; hopefully they will be able to sell without too much pain should their situation warrant later, even in a down market.
Sorry to stray so far OT
I guess approvals at 45/55 or even higher and counting on income that could very easily not be there make me a little crazy given the fact that I thought lax lending standards were supposed to be a thing of the past.
Sorry, while lending standards have changed/tightened for some products, we can still do lots of aggressive lending. You shouldn't beleive everything (or hardly anything) you here from the biased mainstream media. We are still doing lots of $0 down lending, high DTI lending, stated income/limited doc/no doc lending. I am closing a loan on Thursday that is a cash out refi, with stated income & stated assets, no verification of any kind on the employment on a 30 yr. 10/20 interest only fixed rate at 6.25% (1st 10 years interest only and amortizes over the last 20 years).
Thought I would throw that in after you RE professionals comment. Hope it doesn't keep you up at night.
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and counting on income that could very easily not be there make me a little crazy given the fact that I thought lax lending standards were supposed to be a thing of the past.
