Orange County, CA – Sometimes you don’t have enough income to qualify for a home loan. But it may just be a matter of anayzing the type of income that you receive. If there are sources that we can gross up, then it maight make all the difference. What is grossing up you ask? Keep reading.
Mortgage lenders have rules they have to follow in order to qualify you for a home loan. One of the most important that we need to watch are the debt-to-income ratios. Generally speaking, if your total debt exceeds 45% of your income then we can’t offer you a conventional loan. What many people don’t realize, however, is that isn’t 45% of the money you put in your pocket each month — it’s 45% of your gross income. Why does that matter? Let’s find out.
Gross Means Pre-Tax
The biggest difference between gross and net income is that gross income is counted before any taxes come out. Right off the bat, that can add quite a bit to the size of the loan that you can qualify for — but it’s just the beginning. There are many other kinds of income that do not deduct taxes. Let’s take a look at some of them.
- Social security payments can be taxed or non-taxed depending on the type and amount of income received.
- Retirement income from Roth IRA’s or Roth 401k’s are non-taxable.
- Disability insurance payouts are gross income but not net income so long as you (not your employer) pay the monthly premiums for your policy. This even counts if the payout is from a supplementary policy that you purchased alongside a main policy that your company pays for. These are not taxed.
- Similarly, disability benefits from public welfare funds are gross income.
- Worker’s Compensation.
- Some life insurance payouts don’t count as net income, either.
- Employer’ insurance premiums on your behalf. Yes, it might seem a little odd to think of money your employers pays a third party as counting toward your income, but it does. Whether you use a literal health insurance provider like Aetna or Blue Cross, or you have a HRA or HSA that your employer pays into, all of those payments qualify as part of your gross income.
Why are these types of income important and how can they help you qualify? Since we use gross income to qualify you non-taxable income can be grossed up. For example, let’s assume you receive $1,000/month from a Roth IRA. We can gross up your income 25% to account for the non-taxed nature of the income. Therefore, we can use $1,250/month when qualifying you for a home loan. That may just be enough to nudge you up into qualifying for the mortgage you’re looking for!
If you receive ay of the types of income noted above let’s gross up the amount and see where it puts your debt to income ratios then. Contact us to learn more about how to gross up income and to see what you qualify for.