Hello, and thank you for joining me. My name is Fernando Zoota, and I am your host for the podcast and blog, Non-QM Insider, the show where we discuss regulations, guidelines and anything having to do with non-qualified mortgages. Our topic of discussion is using bank statements and W2s to qualify.
This question is asked regularly. If you’re an account executive, you’ll want to be able to answer the question quickly and confidently. If you’re a loan originator specializing in this niche, you’ll want to know this can be done and speak to it with self-assurance. When does it come up? I’ll usually get two different variants on this situation. The first is a result of the gig economy. As an example, a potential borrower, Bob, works at ABC Corp. during the day and receives a W2 and a pay stub. That’s how he pays the mortgage and keep the lights on. Bob’s son is a Junior in college and for the past two years, (you’re going to need at least a two-year history), Bob has been driving for a ride sharing company at night, and receives 1099 income.
“Bob needs to use both his W2 (ABC Corp.) and 1099 (ride share) income to qualify for a loan. Can this be done?”
Depending on the lender, there will be variants on how to use both income streams so consult your guidelines or call your account executive. I’m going to share the most common scenario. The most common scenario says that the W-2 (ABC Corp.) and 1099 (ride sharing) income goes into the same personal account. Most people have their paychecks auto-deposited which makes the calculation easy. Within the bank statements, you can see the auto-deposit every month. First, you’re going to subtract the W2 income from the monthly deposits, itemized in the personal bank statements, leaving only the 1099 income deposits. Second, add up all the ride sharing income to determine an average monthly deposits from the bank statements provided (12 or 24 months). Third, review the W2(s) and pay stubs to calculate a gross income amount. Lastly, you’re going to combine the bank statement average income (ride sharing) with the W2 income income to determine a gross total income. Voila!
“The second most common scenario consist of two borrowers, one is self-employed and the other is a W2 wager earner.”
For example, the husband is an accountant at Accounting Corp. and the wife is a self-employed real estate broker. This example is a lot easier to calculate because you just supply his pay stubs and W2s along with her business bank statements. First, add all the deposits from the wife’s business bank statements (12 or 24 months) and calculate an average monthly deposit. Second, based on your guidelines or your lenders guidelines, deduct an expense ratio (in percentage format). This will determine the average monthly income. Third, calculate the husbands gross income using the W2(s) and pay stubs. Lastly, combine the husband and the wife’s income to determine a gross household income. There it is! If the wife deposit her income into a joint personal account, use a variant of first example to calculate the income.
I’ve provided summaries for the two most common example. Will this cover every scenario you run across? No, of course not. However, I’ve given you enough information to answer the question 75% of the time. Hopefully this information is helpful. Can you use both W2 and bank statement income? The answer is yes.