How You Are Pre-Qualified For Real Estate Loans?

By: Amalorpava Mary

You need to be pre-qualified to avail a real estate loan. When you apply for a loan the loan officer looks into your credit report, and also figures out the maximum loan amount that you can have, by working backward. This could also be done by you, and you can first start by establishing your monthly income. This is not an easy task, for the lenders always take into account that incomes which they can document. In taking out a real estate loan, you would need to qualify as regards to your earnings and your earnings needs to be proven in order that they may be taken into account by the loan officer, who arrives at the loan amount. The loan amount would necessarily depend on the kind of earnings that you have.

Let us find out how the officer would calculate your earnings under different circumstances.

In case you are employed and you receive salaries, and do not get to earn bonuses, the task becomes easy. All you need to do is to refer to your paycheck, and if you get paid every twice in a month, you would be multiplying the amount you get by two. Similarly, if you get paid every two weeks, you would multiply that by 26, considering that, in your case, there are 26 paydays in a year. You need to divide this by 12 in order to get your monthly earning figure. There are people who do not work all through the year, and the rules in their case would be different.

If you earn by hourly payment, and do not earn over-time, it becomes easy to calculate your monthly income. All you would need to do is to multiply your hourly pay by 40, being 40 hours of work per week, which gives you your weekly pay. This way you need to convert into a yearly figure and to do this you multiply that weekly figure by 52, there being 52 weeks in a year. After that, you divide that yearly figure by 12 in order to get your monthly pay amount.

All this is easy to calculate. But if you should be earning overtime, bonuses, or commissions, the matter gets to be complicated. In this case the lenders would not consider the earnings that you have from those sources. Instead they will average out that income that you had for the last two years, and add that amount to your regular income, be it hourly, weekly, or monthly. In order that you can quickly know your monthly income, you should get your W2 forms for the last two years, add up the amounts, and divide that by 24 in order to get your monthly income.

In similar fashion, if you are a teacher, a nurse, a seasonal worker in construction, or a worker earning from a part-time job, you can use the same way to calculate your near monthly income. You would need to add all your pay amounts for the last two years from your two year's W2 form, and divide that by 24. This will get you an approximate monthly income.

You would need a two-year track record if you are a self-employed person or receive 1099 income. The income shown in your IRS is taken to be the documented income that you have. It is quite usual that many of us over-state our expenses while we show our income in the IRS, and this real income may be understated. If you look at the schedule "C" of your tax return, there you will find an amount mentioned as "Profit". This amount is then your annual income, and calculating any depreciation on that value and adding the two sums together, and dividing that by 24, you get your near monthly income.

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