Obtaining a Loan: How Your Income Affects the Approval Process

shutterstock_104400299-300x225When it comes to obtaining a home loan, there are many factors that the lender will take into consideration. One of these factors is your income. Generally speaking, a lender will calculate your average income for the past 24 months. Obviously, if you have changed jobs or had any other changes within your pay structure, these changes could potentially affect whether or not your loan is approved. Therefore, if you are considering a home purchase in the near future, it is beneficial for you to have a better understanding of how lenders view your income and what you need to give your lender in order to verify how much you make.

How to Handle the Loan Process if You are an Hourly Employee

If you are paid on an hourly basis, you will have more difficulty obtaining a job than someone who is on salary. This is particularly true if you do not work on a full-time schedule, as your hours may fluctuate from week to week. Since there is no guarantee that you will receive a set number of hours per week, the lender views you as a bit more of a risk. Furthermore, even if you have started to pick up more hours or have received a raise sometime over the last several months, your income is determined by averaging your income for the past 24 months. This will result in an “income” that is lower than what you are actually making, thereby making it more difficult for you to qualify for a loan.

Fortunately, there are a few steps that you can take to help increase your chances for qualifying for a loan. For example, if you obtain an offer letter from your employer as well as a detailed description of your compensation structure and a current pay stub, you may be able to get an exception from the lender.

How to Handle the Loan Process if You are a Salaried Employee

In general, obtaining a home loan is a bit easier if you are a salaried employee, but recent changes in employment will still make it more difficult for you to get a loan. If you changed from one salaried position to another within the past 24 months, however, you will need to explain the changes in your salary. This involves providing a detailed and itemized list of your positions that is complete with dates of employment. This way, the lender can see that you had no gaps in employment. If there was a gap in employment, you will need to provide a letter explaining the reasons for your unemployment.

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