When Alpharetta borrowers begin to fill out their loan application, one very important section asks about income. At first glance, it’s pretty simple, really. There’s a section for base employment income, any overtime, interest and dividend income, the ever-present “other” section and a field for bonus income. As it relates to bonus income, there are some things that need to be reviewed if the borrowers want or need the additional income in order to qualify.
When lenders review income they’re looking for a gross monthly amount and ask that you provide your most recent pay stubs covering a 30 day period. Approval guidelines require there also be a minimum two year employment history. This is typically accomplished by reviewing your last two years of W2 income. Another task regarding income is making the determination the income is likely to continue into the future. With a two year history, it can reasonably be determined it will in fact continue. But now let’s turn to bonus income.
Lenders can indeed use bonus income to help qualify if needed. But the bonus income needs to be consistent both in amount and frequency. A monthly bonus for example can be used and so too can a quarterly bonus be counted. But if someone gets an annual bonus in January and no other bonus income until the following year, it’s likely the lender won’t use that income. Why? Because the bonus money in the bank in January might not be around come August or September.
Bonus income should also be relatively consistent in the amount. A monthly bonus of $100 and the next month $1,000 tells the lender it’s likely the $100 would be more frequent. Essentially, if the bonus income is consistent both in terms of frequency and amount, it can be used if necessary.
Finally, if the bonus income exceeds base employment income by more than 25%, the lender will consider the borrowers self-employed and will need two years of income tax returns, a profit and loss statement and other items reserved for the self-employed client.
If you’ve got bonus income and need or want it for qualifying, it’s good advice to speak with your loan officer to see how it can be used and what you’ll need to provide for documentation.