When a borrower applies for a mortgage, he must provide income documentation in the form of pay stubs or income tax returns. Undocumented or cash income cannot be used for qualification purposes.
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A borrower's income must be high enough to handle the new debt of the mortgage. The higher the borrower's income, the larger the amount of the mortgage for which he can apply.
Income documentation, such as pay stubs and tax returns, allow a lender to adequately judge the borrower's income and ability to repay the debt. Additional income such as child support and alimony must be verified through court documentation and can be used as well.
Income can be from a W-2 or 1099 income stream. Self-employed income can be used if the borrower reports it on his income taxes. Interest or dividend income can be used if it is a steady, verifiable stream of monthly income.
Second job income can be used if the borrower has had the job for two full years.
Self-employed borrowers often take significant deductions on their income to lower their tax burden; however, this may disqualify them for a mortgage if their net income is not enough to service the new debt.
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