Business and Finance Times

When a loan officer is reviewing your mortgage application, he tries to figure out how much of the mortgage amount should be approved to you according to your past and present financial situation. Before you go to the mortgage officer and apply for the loan, review your monthly income because the lender is going to count on your income through paperwork.

If you are salaried, and don’t earn incentives, you will be able to do the calculations quite easily. Get your paycheck and see the amount. If you are paid twice a month, multiply the amount by two. If you are paid bi-weekly, multiply the amount by 26 and then divide by 12.

If you are paid on an hourly basis and work for 40 hours in a week without any overtime income, then you will need to multiple your hourly rate by 40, multiply that total by 52 and then divide it by 12. You will get to know the total income in a month.

If you are earning overtime, bonuses, or commissions, then the calculations aren’t that easy. Most of the lenders will not give you any credit based on what you are earning currently. They will do an average of your total income over the last two years, and then add it to your regular salary or hourly monthly income. Or you can see the W2 forms for the last two years. Add them together and divide by 24. It will show your monthly income. This calculation will apply on those also who earn on a part time basis or are a seasonal employee.

If you are self employed or receive 1099 income, then you need to have a track record of the income of the last two years. Lenders will see the total amount that you declared to the IRS to be your income since that is documented. Many self employed show more expenses so that they can keep their income lower. Look at the Schedule C of your tax returns for the last two years and the number at the bottom that says “profit” is your annual income. You can add any depreciation to that figure. Add them together and divide by twenty-four.

These are the variations and exceptions of calculating your total income which will be done by the mortgage officer when he is reviewing your application. You can also do this calculation on your own and see the mortgage amount you qualify for.