10 creative ways to income-qualify for a home loan

Options include a trusted co-signer, tapping stock investments
and even future alimony payments

By JEFF LAZERSON | jlazerson@mortgagegrader.com | MortgageGrader.com | February 19, 2024

Article originally posted in Orange County Register on February 15, 2024.

Mortgage rates spiked again. Home prices are popping. And homeowners’ insurance is one big yikes.

What if a lender says your income doesn’t qualify for a home purchase or a refinance loan?

Besides the obvious math, fact-checking or taking out a smaller mortgage, there are a variety of ways to work with your current lender or perhaps find another one.

Here are 10 creative qualifying boosters:

1. In my experience, the most used income-boosting tool is a non-occupant co-signer. For example, your parents. All the applicants’ incomes (and debts) are used for qualifying. A trusting relationship on all sides is critical. The co-signers’ good credit is at risk if the primary borrower doesn’t make timely payments.

2. For those 59½ or older, an IRA pull is a popular income-qualifying booster. The borrower must have at least 36 months of payment reserves in the account. For example, if you were going to pull $5,000 of IRA income per month, you’d need to have at least $180,000 in your retirement account ($180,000 divided by $5,000 equals 36).

3. Alimony and child support can be counted if there are 36 months or more of future payments coming. For example, alimony and child support timelines tend to be memorized in writing.

4. Asset depletion is another way to tap investments and turn them “liquid.” The most aggressive program I found was a five-year asset depletion formula. Let’s say you have $300,000 in your stock market account. Take $300,000 divided by 60 months equals $5,000 per month of income.

5. Fog-the-mirror loans are out there. This means income and employment are left completely blank on the loan application. A qualified buyer needs a minimum of 20% down and good credit.

6. For the likes of gig workers or independent contractors, 1099 income or a percentage of the 1099 income can be calculated without the lender requiring a peek at the borrowers’ tax returns. A tendency is independent contractors are aggressive in claiming expenses (which reduces a tax return’s net income).

7. Using the most recent 12 or 24 months of business bank statement deposits (minus any transfers) to qualify self-employed borrowers, less an expense factor. For example, a borrower averages $100,000 in deposits for a total of $120,000 of deposits annually. The expense factor for a low-overhead business (consultant) is 20%. The income would calculate out at $8,000 per month (80% of $120,000 divided by 12).

8. One-year or two-year profit and loss statement signed by the borrower’s tax preparer (void of providing any tax returns). The big idea is for a reputable third party to attest to the income without coughing up the tax returns.

9. Combination of one borrower with W-2 type wages and the other borrower with alternative income like 12-months of bank statements. This is often called blended income.

10. Business purpose loans for rental properties, as an example. The qualifying income is the monthly rent which must be one dollar more than the total house payment (principal, interest, taxes, insurance and HOA).

Keep in mind that most (but not all) loans with exotic features also carry a higher interest rate. Nothing is free. But sometimes it’s more important to be able to close a deal even with the accompanying higher financing charges.

Freddie Mac rate news: The 30-year fixed rate averaged 6.77%, 13 basis points higher than last week. The 15-year fixed rate averaged 6.12%, 22 basis points higher than last week.

The Mortgage Bankers Association reported a 2.3% mortgage application decrease compared with one week ago.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $230 less than this week’s payment of $4,982.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.625%, a 15-year conventional at 5.75%, a 30-year conventional at 6.25%, a 15-year conventional high balance at 6.375% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year-high balance conventional at 6.5% and a jumbo 30-year fixed at 7%.

Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.

Eye catcher loan program of the week: A 30-year adjustable with 30% down, fixed for the first five years at 6.125%, 1-point cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com. 

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.