Income Requirements in Home Loans

By: Melissa Kellett

Your income, just like your credit score can determine whether you are approved for a loan or not. When it comes to home loans, and since the credit score is not that important on secured loans, the role that your income plays is more important. But, how does it affect the loan approval process and why?

The importance of income on secured loans is greater mainly because the implications of credit score and history are less significant. Since the loan is secured with the property, the lender knows that he will recover his money one way or another. But since he does not want to resort to legal means, he will worry about you being able to afford the loan's monthly payments. And that's when your income comes into scene.

Income - Steady And Proved

It is not enough to have an income. You need to be able to show proof of it and it has to be steady enough to guarantee you will be able to afford the monthly payments. There are many different ways of proving this according to the diverse income sources that you may have. Two common proofs are: employer statements (salary acknowledgment) and tax presentations or any proof of tax payment (income related taxes).

There are various income sources and the lender does not really mind which one provides you with the funds for repayment. It just needs to be steady and provable. Examples of different sources that cannot be considered income are: Donations, family contributions, allowances, etc. If your income is at the edge of approval, you can reduce your spending in order to boost your chances of getting approved.

Wages And Other Income Sources

There are different income sources that lenders can consider when applying for a home loan: Job wages, Own company salaries (If you are the manager of your own company), Entrepreneur income (proved by tax payments), Income from trust funds, Some Government funding, Disability, etc.

Not all lenders will agree to approve your loan with any income source, there are some lenders that only accept income in the form of wages and sometimes those who work on their own and earn more than someone working for an employer can not get approved. If this is your case, shop around for more lenders since there are many who do accept other sources of income.

Co-Singer's Income

Another way of boosting your chances of getting approved for a home loan is to apply with a co-signer. The co-signer's income will add up to yours and you will be able to meet the necessary income requirements. Since the incomes are added you can easily apply with a partner and the combined efforts of both incomes will be able to afford the monthly payments and secure the loan.

In many cases, the income requirement rises a bit if you apply with a co-signer. This is due to the fact that joint applications have been used in the past to deceive lenders. In order to stop abuse, lenders usually raise the income requirement by a 20% or 30% when applications are filled by two borrowers instead of one.

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