Mandatory pension deduction and lending question (401k, salary, 3%, value)

[Eeko156]

I understand that mortgage lending utilizes gross income, not net. However, if an employee pays into a mandatory pension (not 401K), does the lender remove that amount from the gross income equation?

For example, a state employer has a mandatory employee contribution of 3% of salary. This contribution is pre-tax.

Would lender say employee makes 70K or 67,900?

[turf3]

I can't say for certain but it sure seems like the income to be taken into account would be the lower value. You can't use the 3% being mandatorily deducted to pay your current bills, nor can you opt out of the deduction (as you could with, say, a 401k) and your ability to pay your current bills (including the contemplated mortgage) is what the lender will be concerned with.

[Eeko156]

Originally Posted by turf3

I can't say for certain but it sure seems like the income to be taken into account would be the lower value. You can't use the 3% being mandatorily deducted to pay your current bills, nor can you opt out of the deduction (as you could with, say, a 401k) and your ability to pay your current bills (including the contemplated mortgage) is what the lender will be concerned with.

Makes sense. I just thought that since technically, the 3% is part of my gross salary, that it would be considered as such since lenders look at gross salary.

I agree with you, though. In this particular case, since it is a cafeteria-type deduction, I suppose it would be negated.

[Pfhtex]

Originally Posted by Eeko156

I understand that mortgage lending utilizes gross income, not net. However, if an employee pays into a mandatory pension (not 401K), does the lender remove that amount from the gross income equation?

For example, a state employer has a mandatory employee contribution of 3% of salary. This contribution is pre-tax.

Would lender say employee makes 70K or 67,900?

1. No.

2. 70k