How Is My Income Calculated? - When applying for a mortgage, the loan applicant's income, along with his credit history and assets, is one of the three factors that weighs heavily in the loan risk assessment process. The type of income the home buyer receives will determine how the bank calculates the qualifying income. For example a self employed borrowers income will be calculated differently than someone who is paid hourly. While it is impossible to explain how every type of income is calculated, here are some of the most common types of income and how they are typically viewed by lenders.

With regards to mortgage loan qualification, all income calculations are done with gross income, that is, income before taxes are taken out.

For a salaried employee who receives a base pay only and no overtime or bonuses, his or her monthly income will be calculated by dividing their yearly salary by 12 months. The calculated number is the number that will be used for calculating the borrower's debt to income ratio.

Your income can be calculated differently depending on the objective of the Mortgage Professional you work with. With so many different ways to calculate a persons income its best to let the mortgage professional decide which way to go.

With some loan programs, home buyers can provide twelve current months of personal bank statements with deposits average as income. The lender bank would add all the deposits during the twelve month period and use the sum as the home buyer's annual income. However, only regular deposits with like sums are included. Large, sudden, out of the ordinary deposits are ignored. The bank account can only be in the applicant's name and only his name. If the account is a join account only 50% of the total deposits are considered income.

If you receive income that is not taxable, such as social security, banks will "gross up" the amount received, that is, to use a figure higher than the actual income to qualify for the loan.

If you are a W-2 employee and work a second job most lenders will want to see at least 6 months job time to use the second jobs income. They will also be looking for a consistent earning trend for that 6 month period.

Loan qualification is determined by the applicant having gross income that is at least 2.5 times his proposed housing expenses. For instance, if a home buyer is applying for a mortgage in which the monthly payment plus property tax and hazard insurance totals $2,000, He should have a gross household income of $5,000 in order to qualify. However, this in only a guideline. Some subprime mortgage banks approve loan applicants who have gross income that are merely 1.8 times the expected housing expenses.

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