how do lenders determine gross income

[timberwolf]

Me & my husband both received raises at the first of the year. wondering if mortgage lenders will go by our current pay or do they go off of the last 2 years? We are both hourly. It will be about an extra $15,000/year

[ShanetheMortgageMan]

For your situation, in general, it'll be average hours worked per week multiplied by your current rate of pay.  

The lender will reach out to your HR department and ask them to complete a Verification of Employment form.  It'll ask for YTD, 2023 & 2022 earnings breakdown, your rate of pay, average amount of hours worked per week, when the last pay raise was and how much was it for.  Then all that information will be analyzed to make sure it's consistent with your previous rate of pay & the new increased rate of pay.  Assuming the information is consistent, then the underwriter will take average hours worked per week multiplied by current hourly rate.

For other hourly pay categories such as overtime commonly is, then as long as the OT amount is increasing then it'll be an average of 2022 + 2023 + YTD 2024. 

[VAMortgageGuy]

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@timberwolf wrote:

Me & my husband both received raises at the first of the year. wondering if mortgage lenders will go by our current pay or do they go off of the last 2 years? We are both hourly. It will be about an extra $15,000/year

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Shane provided a great answer as always. 

Since you are both hourly you need to be aware of variable income guidelines, particularly for FHA loans.

For employees who are paid hourly and whose hours vary, the Mortgagee must use the average of the income over the previous two years. If the Mortgagee can document an increase in pay rate the Mortgagee may use the most recent 12-month average of hours at the current pay rate.

[timberwolf]

Thanks! I have 40 hours every week no matter what, however my husband is a contractor and does not always have a perfect 40 hour week due to weather. So i understand his hours will be averaged-do conventional loans have those same guidelines? 

[ShanetheMortgageMan]

Yup, conventional financing uses the same underwriting philosophy when it comes to calculating variable hourly income.