How to Calculate your income
Welcome to our pre-qualify series! We are Top Level Home loans and our whole purpose is to be able to give you tips and strategies on how you can obtain your home mortgage.
We're going to discuss income today.
The following stage in the pre-qualification process is to determine your debt-to-income ratio debt-to-income ratiovYou can determine how much of a house payment you can afford by comparing your debt-to-income ratio (DTI), which compares your debt load to your gross income.v
In terms of money, the first thing we'll discuss is: How much do you now make?v
It depends, isn't that right? Many people receive their pay in various ways, but the main principle in all of this is to remember that the banks record your income as gross income.
That means that they will take into account the income before any taxes are deducted.
And before we truly go into the specifics of each sum and category, it's still crucial to remember that just because your statistics are a little off or unusual, it doesn't necessarily mean you can't qualify. It simply indicates that you need some assistance from a professional and/or loan officer to determine where you stand given your particular circumstances.
Formula
What you would like to do is use a formula, there is an actual formula that we as lenders use for it to tell us how much your income is. So for us to use that formula, you want to take how much you make per hour, multiply that per 40 hours (as long as you work those 40 hours all the time)multiply that by 52 weeks in a year and then you are going to divide that by 12.
That is how much income the bank is going to use to be able to pre-qualify you.
The simplest way I've been able to comprehend this is that everything other than an hourly rate is estimated slightly differently. However, we want to calculate commissions, bonuses, piece rates, or essentially anything that is performance-driven or that varies somewhat, in a different way. Ultimately, the bank plainly says, "We need to take the average of the last two years." So it is a two-year average of all bonuses, commissions, and other payments.
The simplest way I've been able to comprehend this is that everything other than an hourly rate is estimated slightly differently. However, we want to calculate commissions, bonuses, piece rates, or essentially anything that is performance-driven or that varies somewhat, in a different way. Ultimately, the bank plainly says, "We need to take the average of the last two years." So it is a two-year average of all bonuses, commissions, and other payments.
You should review your previous pay stubs from the previous two years as well as your current one, and you should note your year-to-date earnings as well as your total earnings for that category as well as your earnings from the previous year and the year before. You'll need to add up all of those sums and divide them by the number of months.
So if you are taking two years, or maybe it is march 1st, you are going to want to take 24 months and then add the two months of the year that have already passed by, and that gives you the amount that you can use for that category.
Now, if you earn a salary, it can depend on how frequently you get it. If you get that salary every week, you want to take whatever the gross amount of that salary is and multiply that by 52 weeks, divide that by 12, and that gives you your income.
If you make it every two weeks, again, you want to take the gross amount and multiply it by 26 weeks, divide that by 12, and that gives you your income.
¿Questions?
Please post your questions in the comments area below if you have any regarding how to calculate your income. miguel@toplevelloans.com You could even email us, and we'd be happy to let you know where we estimate you to be. Keep this income, though, as it will be crucial to determine your pre-qualification in the blogs to come.
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Miguel
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