June 25, 2018
Sure, everyone in the mortgage business talks about rates, especially with the recent Fed increase. But Orion’s experienced brokers focus just as much, if not more, on income, and are asked the question above often. All conventional, FHA and VA mortgages are underwritten to the Qualified Residential Mortgages (QRM, aka QM) standards, as are most jumbo loans. And they know that the primary principle of the Qualified Residential Mortgage guidelines is Ability to Repay. Lenders funding a QRM mortgage must document the borrower's ability to repay the mortgage under the terms of the note on a consistent and regular basis.
Our brokers remind their clients that they must show proof of income that will support the monthly mortgage payment of principal and interest on the loan. Their client’s income, defined as money received on a constant and consistent basis, is key to obtaining a mortgage loan.
The equity in one’s home is an asset, not income. If you have a home worth $600,000 and owe $200,000 you have $400,000 in equity and a loan to value of only 33%. That is great, but it does not help qualify your mortgage as a QRM. And given the appreciation in most areas where Orion lends, this is a common discussion.
The funds in one’s investment account are also an asset. If our broker has a client with an account with a brokerage that has money invested in various mutual funds, stocks, bonds and some cash, for most mortgage products the account balance does not help with the income needed for mortgage qualifying. That said, there are instances in which an asset can be considered income as well. Presumably the income account generates interest, dividend, and some capital gains income that is reported on tax returns. If a borrower can prove the constant and continuing nature of the income (i.e. two years tax returns showing you paid taxes on interest, dividend and capital gains income) that income can be used for qualifying. Be sure to ask your Orion AE if you have questions about certain types of income – the odds are, we’ve seen it before!