There are certain ways and techniques that different institutions, Banks, Mortgage Companies; use for calculating salary for the loan, but I will present you the way, income is calculated in mortgage financing.

There are various methods used by loan reviewers for a particular situation, when an average may be used to get the amount of income that is required to meet the requirements, if that is the only problem and it can be justified. There are always circumstance which can be considered with each unique loan file.

A superior Loan Officer will tell their purchasers to provide to the application process pay stubs to complete one full month and two years W-2s. Therefore,for this reason when the income is figured initially, it will be accurate and therefore qualifying ratios are going to be correct.

The type income should be entered as: regular base income, commissions, bonus (normally used if consistent only) overtime ( must be consistent) self employment income, tip income (must use an average) and alimony and child support for various kinds of additional income.

Foremost the underwriter is needing consistent, stable income. What an person is making on a standard basis. Any income is averaged that is not regular income that is received consistently.

The documentation (pay stubs, W-2’s and tax returns if applicable) is analyzed to see if you are paid monthly payroll, weekly, bi-weekly, semi-monthly or hourly wages, that is calculated by determining what number of standard hours is worked weekly. Total income, not net income is needed to calculate the income for any mortgage loan.

Sample Calculations for Salaried Income

a) Annual Wages: $46,000 ÷ 12 = $3,833.00 monthly wage

b) Weekly: $884.62 x 52 ÷ 12 = $3,833 monthly wages

Hourly: To determine what the hourly rate is; I’ll use a figure which is even. When I use $46000 ÷ 2080 hrs (yearly hrs worked for a 40 hr week) = $22.12 rounded. Needless to say if it $46500 you customarily divide by 2080.

$22.12 x 40 hrs x 52 ÷ 12 = $3834.13 or $46,009 annual

c) Bi-Weekly: * the bi-weekly wages is within the pay stub and using the $46,009 ÷ 26 pay periods = $1769.58
$1769.58 x 26 ÷ 12 =$3834.09

d) Semi-Monthly: * the amount is going to be on the pay stub
$46,009 ÷ 24 = $1917.00 rounded or
$1917.04 x 24 ÷ 12 = $3834.08 ** a penny or two difference as a result of rounding…it is slightly different

Sometimes the underwriter can conclude how an individual is paid according to the dates within the pay stub. Why? Some times people seem to think because they’ve got two (2) pay checks monthly that it will be inevitably bi-monthly income, it can be bi-weekly as two extra pay checks are standard yearly, with bi-weekly salary. It is not at all times easy to tell with the pay stub, however the underwriter can make a analization by calculating the income with the year thus far income and additional ways.

Commission Income:

Calculation of commission income is normally a 24 month average calculation but not less than 12, if it continues to be received continually and is likely to continue within the future. This is actually obtained through the employer but may also be recognizable on the pay stubs and W-2s, since the year to date average will likely be different. Certain situation as always comes into play and therefore it may be calculated differently. **If it is guaranteed and is followed by proof as the equivalent amount each month, or normal for the employer to pay commission that is guaranteed, it would be counted regardless. Usually commission income fluctuates and therefore must be averaged.

Example: January – $1546, February $1200, March $250 etc. with 2009 total commission = $5000
2008 total commission = $2500
$7500 ÷ 24 = $312.50

If the income for 2008 was reversed and $2500 was the commission for 2009, most underwriters will go using the present lower level of $208.33 monthly. This is a sign that the level of commission has flucuated for some reason and is not in line with the previous year and consequently by far the most conservative approach was used. As always other components may some into place also.

Bonus Income:

Bonus income is figured on an average just like commission income and proof of anything contrary to the normal must be proven and documented from your employer. A 24 month history not less than 12 months is used but must be consistent and certain to continue. It also depends upon whether or not the job is one which has a history of bonus income and less time might be applicable if the bonus is guaranteed etc. Different circumstances could apply but this is the norm.

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