A common question home loan applicants have regarding income qualification of a purchase or refinance home loan is, “Do we make enough income to qualify for a purchase or refinance home loan using just one of our household incomes?”
Using just one of the household incomes can come into play in many scenarios when getting approved for a home loan. For example, Jim, in Arnold, MO is a painter but it is difficult to verify his income or, Mike, in Kansas City, is in transition between jobs but is married and his wife has stable employment. For underwriting purposes, using just one of the household incomes that can be verified may be the best route to get approved for a new home loan, while still maintaining both parties ownership rights to the home. Especially, if it is difficult to document one of the household incomes.
As a general rule of thumb, mortgage loan underwriters will qualify the income criteria by using the current total monthly gross (before taxes) household income along with previous 2 years average household income.
Underwriting guidelines base an applicant’s “debt to income ratio” on what is owed to existing creditors on a monthly payment obligation bases on their credit report. Then the underwriter associates these monthly creditor obligations with the gross monthly household income verified. As an average, this calculation is to not exceed a ratio of forty five percent effectively. Other qualifying compensating factors can be considered and utilized in this ratio assessment by an underwriter, as well.
For an individual applicant or joint applicants, the household income is viewed the same – total household income. If joint applicants want to use only one of their household incomes to qualify for whatever reason, this is acceptable if the “debt to income” criteria for the home loan still meets underwriting guidelines.
In summary, the “debt to income ratio” criteria of a home loan can be calculated and qualified in various ways with a home loan. It is important to remember that if joint applicants apply for a purchase or refinance home loan, that they are not always obligated to document both incomes. Many times, only one of the applicants income is necessary to qualify the “debt to income ratio” criteria; thus qualifying the new purchase or refinance home loan with the underwriting department. If the loan is qualified using just one of the household incomes, both individuals can still be on the title of the house together. Thus, protecting both individuals under the title association of the home as real estate owned and vested together on.