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Understanding Seasonal Income

Understanding Seasonal Income

Seasonal income is income that comes during a specific time of the year and not paid every month. Such income can be used to help qualify for a mortgage but only under very specific guidelines. Seasonal income might be income earned over the holidays or summer work when taking on a second job. Seasonal income is not year round and does not require a minimum number of hours worked during that period. This income will be scrutinized but with proper documentation it’s not a problem.

Regular income is verified by paycheck stubs and W2 forms. Income must be documented to have at least a two year history. This timeline is valid for all sources of income. If someone has only worked for one and a half-years, that individual will have to wait until the two year period has passed. Documentation of the two year period means providing the last two years of W2 forms. The income reported on the forms must somewhat match up with the amounts reported on the paycheck stubs. The paycheck stubs will have both regular pay listed for that pay period as well as a year-to-date amount.

For those that are self-employed, it’s a bit more difficult to calculate qualifying income if someone doesn’t’ receive a regular paycheck on the first of every month. Self-employed borrowers receive income when their clients pay them for work done. Some clients might pay on the spot while others might need 30 days to get the invoice paid by corporate. For these folks, there won’t be two years of W2s but there will be two years of 1099 forms. 1099s are forms issued to self-employed borrowers which shows how much was paid to the applicant in the previous calendar year. And just as employed applicants need to have two years of employment verified, so too do self-employed borrowers. This is validated with the last two years of personal and business income tax returns.

Seasonal income is much like bonus income. Bonus income might be a performance bonus based upon reaching certain goals each quarter or surpassing sales numbers for a particular month. Such income needs to be verified by the employer as having a two year history and is expected to continue into the future. The employer’s bonus guidelines may need to be provided for the lender to review. If the bonus is a one-off, it won’t be counted. The income needs not only to be counted on but be regular enough that it can be used to service current and future debt.

Seasonal income must also come from the applicant’s regular line of work. The lender must determine if not only there is there a minimal two-year history but also the income will likely to continue. Someone who takes on a second job with the intentions of bringing home more money to help qualify for a mortgage will find out that without that two year history, the funds can’t be counted, even though it’s evident by looking at the bank statements that the funds exist and the applicant has access to them. However, someone who teaches summer school would certainly be able to use that income to help qualify, again, with at least a two year history of employment.

If you’re unsure about using your seasonal income, it’s important to speak with your loan officer as different loan programs can have different requirements. If there is a history and there is a likelihood of continuance, the lender will probably count it. But you have to ask.

 

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