#5 About Your Income

 

 

What is it, where does it come from, what to do with it and what are the right and wrong ways to manage it – in the context of seeking a home loan?  All good questions – and most of us believe we know the answers.  However, the answers go further than we might realize when it comes to examining “income” for the purpose of obtaining a mortgage loan.

There are many, many sources for income, and some of us have multiple sources for acquiring what we need.  It is a daily challenge to maintain our living needs, to pay our just debts, to help with emergencies, to maintain our health, accommodate special circumstances and prepare for our later years (retirement, for some).

When thinking about buying a home, not only your income itself is important, but also – very importantly – how you manage the income that you generate.  There are many misconceptions about good money management!  How you acquire, handle, spend, store and redirect your income has huge influence on applying for a home loan.

For instance, where your money came from and the manner in which it was paid out to you is a pivotal factor!  Cash in your home safe (...or in the mattress!) has no power unless its origins and path to you can be documented.   In the context of a home loan it’s almost like it doesn’t exist.

Proving the legitimate origin and path of your money is key to it having value and power for a home loan.  Typical sources of income and their authenticity are your job (W2), Pensions, Social Security, Contract work and Self Employment (1099), Permanent Disability, Veterans’ benefits, Landlord receipts, Child Support and Alimony (Court documents) – any and all have traceable documentation.   Being paid exclusively in cash, and proving you have it, in hand, just doesn’t fly without proof of source and accountability.

To make cash count in getting that house loan, you best put it in the bank for at least two months where it can become a “real” part of your income!  If you are self-employed and being paid in cash, there are two disciplines: You must be self-employed for at least two years and have two years’ of tax returns for verification.

It is not just your State and/or Federal entities that make all these rules.  We make some of them, of course, in order for our niche of the financial marketplace to be clean and tidy in helping you achieve the financial guidance, support and help you need to get that loan.   There are government regulations with which we must comply in order to, in turn, help you.

Some cautions:  Don’t just stash your cash if you want it to work for you in this process.   If you get paid consistently only in cash (under the table), that money doesn’t exist in our context!  Don’t loan money carelessly or without documentation (because a good and documented loan to someone can count among your assets, later in the process; and, interest is new income!)  Don’t co-sign carelessly!   Your mortgage lender can clarify the many “whys.”

Where your money – your income – comes from is equally important as how you use it, re-direct it and store it.  The questions at the top of this article have deeper answers than space permits; however, I hope there’s enough here to get you thinking along the lines of better management.  It will help you get to that home loan goal.

Your Income profile connects to the Credit profile we previously discussed.  Both connect, like a set of triplets, to your Assets.  In some ways and at certain junctures, Income and Assets share common ground.  That’s what I will be discussing in my next column!