Lenders want to make sure you can afford the new monthly payments that come with a new mortgage. Makes sense, right? Well, not only does it make sense but so-called ‘Ability to Repay’ or ATR determinations are the requirement of most every residential mortgage made in today’s environment. Lenders make that determination by comparing gross monthly income with the new mortgage payment, which includes taxes, insurance and private mortgage insurance when required. The key word here is ‘monthly.’
Lenders reviewing someone who gets paid on the 1st of each month have it pretty easy. There’s one paycheck issued each month, hence the ‘monthly’ requirement is satisfied. So too are those who get paid on the 1st and 15th. The lender will ask for copies of recent paycheck stubs to third-party verify gross monthly income. The paycheck stub will clearly show the amount of gross monthly income along with year-to-date totals. The paycheck stub will also show various deductions, but those deductions have little to do with calculating qualifying income. It’s income that’s the concern, not deductions.
To learn more about calculating qualifying income and the home buying process, visit the SCOOP! Blog
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