How Do Underwriters Calculate Income

How Do Underwriters Calculate Income?

Underwriters play a crucial role in the loan approval process. They are responsible for assessing the risk associated with lending money to borrowers and ensuring that the borrower has the ability to repay the loan. One of the key factors underwriters consider when evaluating loan applications is the borrower’s income. In this article, we will explore how underwriters calculate income and provide answers to some frequently asked questions.

Underwriters use various methods to calculate income, depending on the type of loan and the borrower’s employment situation. Here are some common methods:

1. W-2 Wage Earners: For salaried employees, underwriters typically use the borrower’s gross income as reported on their W-2 forms. They may also consider additional sources of income such as bonuses, overtime, or commission.

2. Self-Employed Borrowers: For self-employed individuals, underwriters often calculate income based on the average of the borrower’s net income from the past two years. They may also consider additional factors like depreciation, non-recurring expenses, or changes in the business’s financials.

3. Commission-Based Income: Underwriters may require commission-based borrowers to provide a history of their earnings over a specific period. They will evaluate the consistency and stability of the income before determining the borrower’s qualifying income.

4. Rental Income: If the borrower owns rental properties, underwriters may consider a portion of the rental income as qualifying income. This is usually calculated by subtracting expenses such as mortgage payments, property taxes, and maintenance costs from the rental income.

5. Investment Income: Underwriters may also consider income from investments, such as dividends or interest, when calculating a borrower’s overall income. They may require documentation, such as tax returns or statements, to verify the income.

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6. Alimony and Child Support: Underwriters may include alimony and child support payments as part of a borrower’s income. However, they usually require proof of a consistent payment history and a court order or agreement.

7. Non-Traditional Income: Underwriters may consider other sources of income, such as retirement benefits, social security, or disability payments. These sources typically require documentation to verify the income and its stability.


1. How do underwriters verify income?
Underwriters verify income by requesting documentation such as pay stubs, tax returns, bank statements, and employment verification.

2. Can underwriters consider future income?
Underwriters generally only consider verifiable and stable income. Future income, such as a job offer or promotion, may not be included in the calculation.

3. How does fluctuating income affect loan approval?
Fluctuating income can make it more challenging to qualify for a loan. Underwriters may require additional documentation to verify the stability of the income.

4. Can underwriters consider income from a side gig?
Underwriters may consider income from a side gig if it can be documented and has a consistent payment history.

5. What if the borrower has multiple sources of income?
Underwriters will consider all sources of income as long as they can be verified and are stable.

6. Can underwriters consider income from a rental property without a rental history?
Underwriters may consider income from a rental property without a rental history if the borrower provides a lease agreement or other supporting documentation.

7. What if the borrower has gaps in employment history?
Gaps in employment history may raise concerns for underwriters. They may require an explanation and additional documentation to evaluate the borrower’s ability to repay the loan.

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In conclusion, underwriters rely on various methods to calculate income when evaluating loan applications. It is essential for borrowers to provide accurate and verifiable documentation to ensure a smooth loan approval process.