Do lenders look at monthly income or annual income? (insurance, loan, real estate)

[doss1]

Hey guys,
I'm in my 20s and looking to buy my first real estate item (land, not a home). I currently rent a home for really cheap (it's my parent's second home).

Anyways, my question is....do lenders look at my monthly gross income or annual gross income when deciding how much I can borrow?

I ask because I work on commission and there may be some months where I make very little (1k or so) and then others where I make lots (10k+).

I'm wondering if a bank will see me as a risk due to the fluctuation in my income history. However, every year I nearly double my income, so that's a plus?

Thanks for any clarification!

[RidgeRunnerXL]

Yes they will look at your monthly and annual income (paystubs and W-2's), but since you are commissioned, they will take a 2 year plus average and use that figure since it will fluctuate. They would like to see at least a two year average being paid this way...........hope this helps.

[EANJ]

I would think a lender might be more careful on land than they would on a home, investment property, etc.. I am sure there are a lot less lenders today who loan on land than there used to be.

Do you get a W-2 from any of the companies you work for? If not, then you must be getting all 1099's. I would suspect that an underwriter would look at your "gross" income, but even more so your "net" income (after all of your deductions, expenses, etc.). I've been told that lenders tend to look at both annual and monthly. I am not sure if either is weighted more heavily, but in today's day and age, who knows.

I would think they might ask for two or three years of tax returns/documentation as well, especially for a commission-based person. Good luck.

[doss1]

Thanks guys, i was just checking the "home buying for dummies" and it states that most lenders just look at the last 30 day paystub, aside from W2s for 2 years. If so, then that's fine.

Thanks.

[EANJ]

Originally Posted by TexasNick

Thanks guys, i was just checking the "home buying for dummies" and it states that most lenders just look at the last 30 day paystub, aside from W2s for 2 years. If so, then that's fine.

Thanks.

You are welcome. So I guess you get a W-2. That's good. Hopefully it's substantial enough (and maybe along with some 1099's) that they will look at a couple of years of that, along with the paycheck stub, as you mentioned -- and hopefully you are on your way! Good luck.

[doss1]

thanks, but the problem is is that I only have 3 years worth of real income history. Yea, I got W2s.

[EANJ]

Originally Posted by TexasNick

thanks, but the problem is is that I only have 3 years worth of real income history. Yea, I got W2s.

I don't know if 3 years is a problem. I am sure your bank/mortgage broker will be able to tell you. That's their job -- to know where (what lenders, programs, etc.) you can qualify and where you can't.

When I bought my first place, I was young, just starting out, new business/career -- 100% commission-based. I had two years W-2's, 1099's, etc. The lender based their underwriting on:

1) My credit score, which was good.
2) My assets -- which at the time I had none, other than some money in the bank, life insurance and a small investment account (very small!)
3) My income

I think they might have asked me for a tax return, but I really don't remember. Maybe I offered it or something. I really don't remember. Looking back at it now, and I am really laughing about it now, I remember I was very nervous. I remember calling the mortgage broker almost everyday, asking what was going on, what was taking so long, etc. LOL.

Today, I apply for a mortage 20 times that amount, more, and it's like drinking a glass of water.

Congratulations and Good luck!

[Chinolala]

Lenders look at both as well as take into account other debt (car, credit cards, etc). Be sure to base your purchase on what your net or take home pay is. That's the number that really counts when you're paying your bills.

[VictorBurek]

[quote=TexasNick;5692431]Hey guys,
I'm in my 20s and looking to buy my first real estate item (land, not a home). I currently rent a home for really cheap (it's my parent's second home).

Anyways, my question is....do lenders look at my monthly gross income or annual gross income when deciding how much I can borrow?

I ask because I work on commission and there may be some months where I make very little (1k or so) and then others where I make lots (10k+).

I'm wondering if a bank will see me as a risk due to the fluctuation in my income history. However, every year I nearly double my income, so that's a plus?

Thanks for any clarification![/quote


Since you work for commissions, lenders will ask for your last 2 years tax returns. They will go off an average of 2 years gross income less deductions you took.

I would suggest that you get with a professional mortgage person and have them review your tax returns to determine exactly what income the lender will allow.

By doing this you will save yourself a lot of time when you are ready. One benefit of a commission or self employement is the ability to offset your income with expenses you had.


The fluctuating income will not be a problem, but that is why they will want 2 years tax returns and take an average over that time.

Land loans are basically similar to buying a home. You will be required to put down at least 10 to 20 percent.