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MORTGAGE KNOWLEDGE CENTER

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CONVENTIONAL LOANS

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Apply before becoming a member.

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1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

  1. Home
  2. Mortgage Knowledge Center
  3. How to Document Income for a Mortgage

MORTGAGE

How to Document Income for a Mortgage

EXPECTED READ TIME: 6 MINUTES

July 1, 2021

If you're getting ready to apply for a mortgage, it's good to know ahead of time what type of income documentation you'll need. That way, you can be prepared, and the loan process will go smoother. Depending on your income sources, you may only need to come up with a few documents. On the other hand, if you're self-employed, you'll need to supply more. Read on to see what to have ready when you apply for a home loan.

Documentation Rules When Applying for a Mortgage

When applying for a home loan, you'll need to provide proof of income. That way, your income sources, and amounts can be verified.

  • The basic rule is to have written documentation. If you receive cash payments ­— that's hard to prove the source unless you report that cash on your taxes. But when you receive consistent deposits into your checking account, that's easy to establish and show the source.
  • Keep in mind, if you don't count the income on your taxes, you can't use it. For example, you can't count cash tips if you don't claim them on your taxes. The same goes for getting paid under the table. If you hide the income, so you don't pay taxes, you can't count that income on your mortgage application.

Those are the basic rules going in. Now here are more specifics about different types of income.

Different Types of Income Documentation

Here's a quick list of what you may need to gather depending on what type of income you receive. Make sure you have clean copies and include all pages. For example, if you have a four-page bank statement and the last page is blank — you'll still need to include that page. Otherwise, if it's missing, the underwriter will ask for it.

  • Tax returns (business and personal for two years)
  • Pay stubs (for the last 30 days)
  • W2s (most recent)
  • Bank statements (for last two to three months, not transaction printouts)
  • Retirement and investment account statements (for the last two to three months)
  • Award letters for social security and proof of deposit
  • Award letters for retirement and pension as well as proof of deposit

For employment history, you'll need to document two years of history of the same line of work. For example, if you were a software engineer for one year and changed your career, and became the CFO for an online startup company for one year, you wouldn't have two years of employment in the same line of work. So, you'd have to wait for a year to apply if you want to get a government or conventional loan.

Paystubs & W2s

The employer information (name and address) on your paystubs and W2s must be consistent throughout your documentation, or you'll need to write an explanation letter. For example, if you work for ABC Company, but the payroll company is Paylocity, and midway through the year, the payroll company changes — if it shows on your paystub — the underwriter will need an explanation. The employer's address will also be confirmed and needs to be consistent or explained if there's a difference. 

Some professions receive varying incomes. These include waitresses, firefighters and bartenders, nurses, doctors, and pilots. If your income varies, your loan officer or processor will help with the correct calculation.

It's important not to assume that the underwriter will "figure it out" — it's their job to have written documentation backing up their decisions.

Self-Employment

If you're self-employed, you'll need to supply your business and personal taxes. You'll also have to sign a 4506-C so the lender can get a transcript of your taxes from the IRS and verify the information on your tax return.

You'll also need a profit and loss (P&L). A P&L is easy to put together if you don't have a program like QuickBooks. It can be as simple as the current date, the period covered, and the name of the business.

  • Income
  • Expenses
  • Profit

It will need to be signed by the owners.

According to Fannie Mae guidelines, there are certain items from the tax returns added back when computing the income. Your loan officer or processor will do this for you.

The below adjustments must be made to Schedule C income/loss:

  • Non-recurring income must be deducted.
  • Any exclusion for meals and entertainment expenses must be deducted.
  • Depreciation must be added back.
  • Depletion must be added back.
  • Business use of a home must be added back.
  • Amortization must be added back.
  • Non-recurring casualty losses must be added back.

Child Support & Alimony

Have a copy of the court order and bank statements or canceled checks. The main concern with this type of income (just like with any other sources) is consistency. For example, if you get child support or alimony direct deposited into your bank account like clockwork — no problem.

But if some months you don't receive anything, other months are paid in cash, and sometimes the amount is different — you wouldn't be able to count that income.

Social Security & Retirement

For social security, you'll need your most recent social security award letter and copies of the bank statements where the funds are deposited. The same thing goes for retirement and pension income. You'll need your most recent award letter and proof of deposits.

Boarder and Roommate Income

To count income for renting out a room or having a roommate, it needs to be listed on your tax return. Here's the documentation Fannie Mae requires:

  • Documentation of the boarder's history of shared residency (such as a copy of a driver's license, bills, bank statements, or W-2 forms) shows the boarder's address as the same as the borrower's address.
  • Documentation of the boarder's rental payments for the most recent 12 months.

As you can see, the underwriter will leave no stone unturned.

More to Know About Income Documentation

  • Current: Most lenders require the documentation not to be older than four months. So, if you're buying a home and supply the information before you start shopping, and it takes you five months to find a house — you'll need to update your information.
  • Consistency: The stable and reliable flow of income is a critical consideration in mortgage loan underwriting. All income used in qualifying a borrower must be verifiable, stable, and likely to be received for the foreseeable future.

Be Flexible and Willing to Supply Whatever is Needed

The above are the most common sources of income. Of course, there can be additional sources, and the most important thing to know is that you'll have to show proof. Work with your loan officer and processor and be willing to provide whatever they ask for.

It's always smart to save copies of your documents on your computer so you can find them easily and keep hard copies close at hand. That way, if your lender needs you to resubmit something, you know right where it is. And if you're buying a new house — don't pack these documents away! Nobody wants to be digging through boxes at the last minute. When applying for a purchase mortgage or refinance, it's good to be prepared, flexible, and willing to supply whatever the lender asks for.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

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CONVENTIONAL LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

*Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Draw Period. During your Draw Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of September 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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