Central Coast Lending allows borrowers to qualify for a mortgage with income represented by just one year of tax returns.
The loan qualification process requires documentation of income to gauge how large of a home loan the borrower can afford. In most cases, the borrower must submit two years of tax returns to determine the maximum loan qualification.
In situations where the borrower’s income spiked in the most recent year, the two-year standard might limit the loan amount that he or she can afford today.
Central Coast Lending co-owner Daniel Podesto offers a convenient shorthand for estimating buying purchasing power.
“Roughly, for every $100,000 you borrow, your mortgage payment will be $500 per month,” said Podesto.
At a 50% debt-to-income ratio – the upper limit – a buyer would need to make $12,000 per year for every $100,000 borrowed assuming no other monthly liabilities.
Consider then: a $6,000 jump in income offers another $50,000 in purchasing power.
The bottom line: moving from an income of $36,000 per year to $42,000 per year allows the borrower to move up from a loan of $300,000 to $350,000.
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This situation applies for income that increases resulting from a promotion or raise, but more commonly we see qualification issues pertaining to self-employment, rental property, or farming. Consider these examples:
Situation 1: You are self-employed. Your business survived the recession, but your bottom line shrunk. As the economy has improved, your income has finally made significant, sustainable strides. Only problem: this growth only happened in the past 12 months.
Situation 2: Part of your income is derived from almond trees. After 30 years, your trees went dormant. You spent five years cultivating a new crop, and last year you finally started to see almond sales spring back.
Situation 3: Part of your income comes from a rental property. After a years worth of renovations, you are again able to rent your property out – and for a higher monthly rent.
In each situation above, the potential borrower is able to qualify for a loan based primarily on what they make now (and in the future), rather than two years ago.