A large step in receiving loan approval is establishing your ability to pay the loan back and this is largely done by proving your income range. Proving your income range can be tricky, especially if your income comes from a range of sources including your full-time employer, freelance work, contract work or even gifts. How can prove your income range?
A large portion of the proof that buyers need to provide is right in their tax documents. If you are an employee at a company, your W2 form will report how much you earned in a given year and your employer at that time. Self-employed individuals usually provide their tax returns as a means to confirm their income and net profits. The same is true for independent contractors, who are able to document all of their earnings from contracted jobs on 1099-MISC forms.
Pay stubs are another valid form of proof that comes right from your employer. These will provide details on your income as well as your employer. Pay stubs are a great way to present a very up to date representation of your income, so you should be sure to use the most recent one you have access to. Pay stubs are relevant for self-employed individuals as well because they are essentially proof that you are receiving a paycheck from your own business. You can also provide copies of checks from your clients as proof of income if you are self-employed.
Many lenders require bank statements as an additional means of proof. The reasoning here is that direct deposit payments show up on your bank statement and can be used to prove your income range. Some lenders will instead ask for your account numbers, which typically eliminates the need for individual statements.
Unearned income should always be presented as well. Many first-time buyers receive monetary help from family members to increase the size of their down payment. If you are in this situation, be sure to obtain documentation that conveys that these funds are indeed a gift and do not need to be repaid.
Golden Lenders Simplify the Homebuying Process for You
Golden Lenders has experience working with buyers in every stage of the homebuying process. We specialize in helping people buy a new home or refinance the one they are living in now, regardless of credit standing. Give us a call today at 303-482-2361 to learn how we can help you!