How to Calculate Income for Mortgage Underwriting

How to Calculate Income for Mortgage Underwriting

When applying for a mortgage, one of the most important factors that lenders consider is the borrower’s income. Mortgage underwriters carefully evaluate income to determine the borrower’s ability to repay the loan. Calculating income for mortgage underwriting can be a complex process, but understanding the basics can help borrowers prepare for the application process and increase their chances of approval.

1. Gross Income: The starting point for calculating income is the borrower’s gross income, which includes wages, salaries, tips, commissions, and any other income sources before taxes and deductions.

2. Documentation: Borrowers must provide supporting documents to verify their income, such as pay stubs, tax returns, W-2 forms, and bank statements. Self-employed individuals may need to provide additional documentation, such as profit and loss statements or business tax returns.

3. Stability: Lenders prefer borrowers with stable income sources. Typically, they consider income from the past two years. Consistency and stability in income increase the borrower’s credibility and ability to make timely mortgage payments.

4. Overtime and Bonuses: Borrowers who earn overtime or receive bonuses can include these amounts in their income calculation. Lenders usually average the amounts earned over the past two years to account for any fluctuations.

5. Self-Employment Income: Self-employed individuals may face more scrutiny during income calculation. Lenders often require a longer track record of self-employment income and may use tax returns to determine an average income over several years.

6. Rental Income: If borrowers own rental properties, the income generated can be added to their overall income calculation. Lenders typically require a rental agreement or lease to verify the income.

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7. Debt-to-Income Ratio: After calculating the borrower’s income, lenders compare it to their monthly debt payments, including the potential mortgage payment. This ratio, known as the debt-to-income ratio, helps lenders assess the borrower’s ability to manage their debt obligations.


1. Can I include income from part-time jobs?
Yes, as long as the borrower can provide a consistent history of part-time income, it can be included in the calculation.

2. How is income calculated for commission-based jobs?
Lenders usually average the commission earned over the past two years to determine a consistent income amount.

3. Can I include income from alimony or child support?
Yes, alimony and child support income can be included if the borrower can provide documentation of its regular receipt.

4. How is income calculated for self-employed individuals with variable income?
Lenders typically use tax returns from the past two years to determine an average income over time. They may also consider profit and loss statements.

5. Can rental income from investment properties be included?
Yes, rental income can be added to the borrower’s overall income calculation if they can provide documentation of the rental agreement or lease.

6. Is there a maximum debt-to-income ratio allowed?
While lenders have different criteria, a commonly accepted guideline is a debt-to-income ratio of 43% or lower.

7. How can I improve my income calculation for mortgage underwriting?
To improve your income calculation, strive for consistent income over time, minimize debt, and maintain accurate and organized documentation of your income sources.

Calculating income for mortgage underwriting can seem daunting, but with the right information and documentation, borrowers can navigate the process more confidently. By understanding the factors that lenders consider and addressing any potential issues, borrowers can increase their chances of obtaining a mortgage loan and achieving their homeownership goals.