27 Aug You Make Plenty of Money. So Why Did the Mortgage Company Say No?

You Make Plenty of Money. So Why Did the Mortgage Company Say No?

Qualifying for a mortgage isn’t always as simple as looking at how much money you make. You may have plenty of money coming in, pay your bills comfortably, have savings in the bank and even earn six figures, yet still hear, “We can’t use all of your incomeYou have money coming in. You pay your bills. You have money in the bank. Maybe you even make six figures.

Then you apply for a mortgage and hear:

“We can’t use all of your income.”

Wait…what?

One of the most frustrating parts of qualifying for a mortgage is discovering that the amount of money you actually earn isn’t necessarily the same as the income a mortgage underwriter can use.

It doesn’t automatically mean you can’t buy the house.

It may just mean we need a different strategy.

Why Qualifying for a Mortgage Is Different From Making Money

Mortgage lenders don’t simply look at the deposits hitting your bank account and say, “Yep, looks good.”

Income generally has to meet specific requirements before it can be considered qualifying income.

Depending on the type of income, we may need to establish things like history, stability, documentation and the likelihood that the income will continue.

That’s fairly straightforward for someone earning the same salary from the same employer every month.

But real life isn’t always that simple.

Maybe you’re self-employed.

Maybe a large portion of your compensation comes from commissions or bonuses.

Maybe you own rental properties.

Maybe you receive distributions from a business, trust or investments.

You can have excellent cash flow and still have income that doesn’t fit neatly into traditional mortgage guidelines.

Self-Employed Borrowers See This All the Time

This is probably the example I encounter most often.

You own a successful business and your accountant legitimately helps you maximize available business deductions.

Great for taxes.

Potentially not so great when you’re qualifying for a mortgage.

Traditional mortgage underwriting generally looks at taxable income and applies specific calculations to determine qualifying income.

So you might tell me:

“My business brings in $300,000 a year.”

But after expenses and allowable deductions, your tax returns may show significantly less income.

That doesn’t mean the business isn’t successful.

It means we need to determine what income can actually be used for the mortgage.

And depending on the situation, a traditional conventional loan may not be the only option.

Commission, Bonus and Overtime Income Can Get Tricky Too

Let’s say your base salary is $70,000, but you regularly earn another $40,000 in commissions and bonuses.

You think of yourself as earning approximately $110,000.

Understandably.

Mortgage underwriting may look at those pieces separately.

We may need to document the history of the additional income and determine whether it is stable and likely to continue.

A recent raise, new bonus structure or great commission month doesn’t necessarily mean we can immediately annualize that amount.

That’s why qualifying for a mortgage is about more than multiplying your latest paycheck by 12.

Rental Income Isn’t Always Dollar for Dollar

Own rental properties?

Another surprise may be waiting for you.

If your tenant pays you $2,500 per month, you shouldn’t automatically assume an underwriter will add $2,500 to your qualifying income.

How rental income is calculated can depend on the property, your tax returns, lease agreements and the type of financing you’re applying for.

The same concept applies to a future investment property.

Projected rent may help in some situations, but there are guidelines governing how much can be used and how it is documented.

This is one reason real estate investors benefit from working with someone who understands both traditional and alternative financing options.

Trust, Investment and Retirement Income Have Their Own Rules

Income doesn’t have to come from a job.

Some borrowers receive money from trusts, investments, retirement accounts, pensions or other assets.

That income may potentially be usable for mortgage qualification, but documentation matters.

For example, we may need to determine how long distributions are expected to continue or whether sufficient assets remain to support them.

In other situations, the assets themselves may potentially help someone qualify through an asset-based or asset-depletion calculation.

This can be particularly useful for borrowers who have substantial assets but don’t receive a traditional paycheck.

What If Your Tax Returns Don’t Tell the Whole Story?

This is where mortgage planning gets much more interesting.

Traditional financing isn’t the only way to qualify for a mortgage.

Depending on the borrower and property, there may be alternative documentation programs that evaluate income differently.

For example, some self-employed borrowers may qualify using bank statements rather than traditional tax-return income.

Other programs may consider a profit and loss statement.

Investors may have access to DSCR financing that focuses primarily on the property’s cash flow rather than the borrower’s personal income.

Borrowers with substantial assets may have asset-based qualifying options.

These programs aren’t automatically better than conventional financing. Rates, down payment requirements, reserves, fees and other terms can be different.

But sometimes they solve a problem that a traditional mortgage simply can’t.

This Is Why I Want to Talk Before You Start Shopping

A prequalification shouldn’t just answer:

“How much house can I buy?”

I want to understand how you make your money.

Are you salaried?

Self-employed?

Commissioned?

Do you own businesses?

Rental properties?

Receive trust income?

Have substantial investment or retirement assets?

Are you planning to sell another property?

Once we understand the entire financial picture, we can figure out which financing strategy actually fits.

Sometimes the answer is conventional.

Sometimes it’s FHA or VA.

Sometimes it’s a bank statement program, DSCR loan or another alternative documentation option.

And sometimes we simply need to plan ahead before you’re ready to buy.

Don’t Assume a Mortgage Denial Means You Can’t Buy

This is probably the most important part.

If you’ve already talked to a lender and were told you don’t qualify because of your income, don’t automatically assume that’s the end of the conversation.

Ask why.

Was it your debt-to-income ratio?

Self-employment history?

Taxable income?

Variable income?

Documentation?

Rental income calculation?

Something else?

Once we know exactly what caused the problem, we can determine whether there’s another solution.

There may not always be one.

But “this loan doesn’t work” and “you can’t get a mortgage” are two very different statements.

Qualifying for a Mortgage Starts With the Right Strategy

Other Options for Qualifying for a Mortgage

If your income is simple, mortgage qualifying may be simple too.

If your income isn’t simple, your mortgage strategy probably shouldn’t be either.

Qualifying for a mortgage when you’re self-employed, commissioned, an investor or living on nontraditional income may require a deeper look at your finances and the programs available.

That’s why I would rather have the conversation early.

Before you fall in love with the house.

Before you write the offer.

And definitely before someone tells you that you don’t make enough money when you know perfectly well that you do.

At Sage Home Lending, I don’t just want to know how much money you make.

I want to understand how you make it so we can build the right mortgage strategy around it.

You can apply Here!

Check out our team https://www.sagehomelending.com/about-us/meet-the-team/

Build wealth through real estate. Start with a plan that actually fits your financial life.