It is definitely not an easy thing. Buying a home, in fact, is the biggest investment you will ever make in your life. Most of us do not have enough cash in hand to pay for the entire amount of the house we are planning to buy. Thus, we take resort in mortgages. Mortgages, also known as home loans, are the only way we can afford buying a home of our own. However, getting mortgage is not easy as well. There are a number of factors that are considered by institutions that offer home loan. You have to fit into their criteria before they begin the process of lending you money to buy your home. One of the main factors considered in this process of acquiring home loan is your income.
Borrowers of home loan might be living a perfect life, but they don’t have a qualified income documentation or a declared low income which makes them unable to qualify for mortgage. To get mortgage, the mortgage underwriters require you to provide them with the following:
All of these documents are required by the lending company to see whether or not the applicant qualifies for the loan or are able to meet the required debt to income ratios. Many factors, such as unreimbursed expenses, can prove to be deal killers in the case of mortgage loans. Lenders usually go by the adjusted gross income present on the borrower’s tax returns.
So, what’s the catch?
One of the most popular forms of home loan is the W2 income only mortgage. A number of people have chosen this form of home loan for the ease it provides to the income earning community. In this blog, we will discuss all you need to know about the W2 income only mortgage.
As we have discussed previously in our blogs, one of the most common loan products when it comes to mortgages is the FHA loans. They are, by far, the most popular loan programs offered due to the easier requirements for their approval as compared to the conventional loans. A common myth about FHA loans is that only the people with a bad credit score opt for it, which is not true at all. In fact, many people with a great credit score also use FHA loans. People who have applied for a mortgage usually file their taxes to be able to pay the least amount of tax or get a largest tax return. While this might be a good idea in the short term, these large deductions can actually hurt your qualifying income. Thus, you will not be able to get a home that you might have imagined.
To resolve this issue, the FHA has a new program, the FHA W2 only mortgage loan. This program allows the borrower to go through the process of mortgage qualification without the need to share their tax returns or have them scrutinized during the loan application process. Also, W-2 only programs exist for conventional loans as well. The prudent loan officer should just make sure tax returns are not required by his company in the form of a lender overlay, or that the investor that he locks an interest rate with requires tax returns. A prudent loan officer should make sure to read their findings carefully to make certain. Let’s talk about it in detail.
The borrowers who have to buy their own work uniforms fall under the unreimbursed category. These employees include but are not limited to the following:
Borrowers who also need to purchase tools and equipment to do their jobs also fall under the unreimbursed employee expenses and qualify for this loan.
Other borrowers who took a loss on a side business but otherwise have strong W-2 earnings are are ideal candidates for a W-2 only mortgage.
W2 only income mortgage gives the borrowers with a lot of unreimbursed expenses an opportunity to qualify for a mortgage loan. However, there are some exceptions, as mentioned below:
Th applicants of W2 income only no tax return mortgage need to be fulltime W2 wage earners to qualify for the W2 income only loan.
Borrowers who write off a lot of expenses written off on their tax returns will have to negate the W2 income. In most of the cases, the write offs make the applicant unable to qualify for mortgage loans. It is very important to understand the entire mechanism of how the W2 income only mortgage works before you go on and apply for it.
Income tax returns are not required when it comes to W2 income only mortgage. Haven’t filed your income taxes? Don’t worry as this loan program will still cater you. This mortgage only requires verification of the W2 income transcripts from the Internal Revenue Service.
Over 25% of Income in Form of Commission
If a borrower’s income is derived from mainly commission then he will have trouble qualifying for a W-2 only mortgage loan.
If you are a self-employed borrower, own a business or fall into the category if 1099 wage earners, you need to provide your income tax returns of 2 years along with a 2-year 1099 income.
The mortgage borrowers who fall under the 1099 wage earners category, such as realtors, car salesman or any other sales workers, will have to provide two years of 1099’s along with tax returns for 2 years.
Mortgage underwriters go off the most recent paycheck stubs of the borrowers who are W2 wage earners. These are reflected on the past 30 days paycheck stubs, as well as from the verification of employment by the employer. While two years W2s are required, yet there is a lot of leniency when it comes to W2 wage earners.
If the applicant has had employment gaps in the past two years, they will still qualify for the W2 income-only mortgage as long as they are able to find a new job within 6 months. They also shouldn’t have a gap of more than 6 months in employment.
Overtime income can be considered as an additional income provided that the applicant has been regularly receiving it for the past two years. Similarly, bonus income can also be used to qualify for mortgage if the applicant has been receiving it regularly for the past two years. Child support and alimony income can be included if it is expected that the applicant will receive it for the next three years.
With W2 income only mortgage loan, you don’t need your tax returns to be able to qualify for it. This has helped a number of people who earn W2 wages and are not able to buy their own homes because of the tax return requirement on other kinds of home loans. The condition of W2 income only mortgage, as mentioned above, make it easier for the W2 wage earners to apply for and qualify for a mortgage. If the underwriting system doesn’t require it, the W2 borrowers don’t have to provide their tax transcripts for VS, conventional or FHA home loans. The exceptions to this case are also mentioned above. In addition to this, a number of leniencies have also been provided to the W2 wage earners to help them get a home loan and be able to afford their own homes.
The W2 income only mortgage is an ideal program for wage earners who have a number of unreimbursed expenses, which make them ineligible to qualify for other kinds of home loans. So, if you fall under the category of W2 wage earner and are looking for an easy home loan, then the W2 income only mortgage will work the best for you.
If you have been denied a home loan or have any questions about real estate or mortgage please contact Loan Consultants at 844-275-2007. Just give us a call or text and we will be happy to assist you.