Proving Your Unfixed Income to Get a Loan

Okay, so you have ”hard-to-prove” income. How do you qualify for that home loan? This usually means that your income does not quite fit lenders’ guidelines. That can mean:

- The income does not have a two-year history.
- The income is not likely to continue for two to three years.
- The income can not be documented by third-party sources.

Note that none of these three requirements mean that you are trying to fool the underwriter. They do not mean that the income does not exist. Why would anyone go through all the hassle of buying a home without any means of paying the note? However, an underwriter is required to document a loan so that it fits the lender’s requirements. Lenders look for a history of income, and if you can not prove a source of income, it most likely would not be counted. But that is why there are stated loans. Here are a few examples of real income that lenders may or may not accept on a full doc basis:

- An artist selling her first paintings
- A ballplayer getting his first paycheck playing baseball
- A businessperson opening up a successful new car-wash business
- A single parent working two or even three jobs to try to pay for college
- A chef opening a new restaurant
- A person whose income is from a pension
- An author whose new book is selling like crazy
- A general contractor who gets income on a job-to-job basis
- A ”handyman” who roves about getting odd jobs

All of these endeavors are worthy, but sometimes in the eyes of lenders, the income just can not be counted. It is not that the income is not there; it is just that the loans are reserved for those whose paychecks come twice per month or who are paid by the hour. Hourly or monthly wages reported on a W2 are easy to verify. Other income sources may not be.

So what do you do if your income falls outside of the standard guidelines? Most stated loans have a guideline that is nearly impossible to get around: the two-year history of employment. Almost any type of loan can be approved under various credit standards, but the need to have a most recent- two-year history of employment or self-employment is usually rock-solid. So how do you verify two years of employment if you are going stated?

If you are self-employed or get income from different sources, a lender will ask for a letter from your CPA stating how long you have been doing what you have been doing. If you do not have an accountant or some other third party who can verify your most recent two years, then a copy of your business license with a date on it will work. Do not have a copy of your business license or do not have one? How about a Yellow Pages ad in the phone book that is two years old? Do you have anything at all that can show that you have been working at the same job for at least two years?

Lenders can get pretty creative, and so can your loan officer. But if you can not get past this test, then your choices will be severely limited to no document status or loans from a private investor. Many times the issue regarding proving income is the result of being paid in cash. If your employer pays you in cash on a per-job basis, it is vital that you get your employer to provide you with a wage summary. A wage summary tells anyone who properly asks how much you get paid and how often. The problem with people who are paid in cash is that often they simply keep it, with no record of its receipt. If you are paid in cash and you want to buy a home, it is essential that you open up a bank account to deposit such receipts. When you make those cash deposits, your lender will be able to match what your employer says you are being paid with what you put into your bank account. You can provide your W2s from the previous two years to show your income, but you will also need to document your year-to-date earnings.

For people who get paid by check, the employer usually enters the year-to-date earnings on the check summary. If you get paid in cash, your employer will need to complete a Verification of Employment form that is provided by your loan officer. It is here that your employer will state how much you make and how much money you have made so far this year. If this is still a problem, your loan choices will be limited to no documentation, no income, or no income, no asset.

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