Calculating income properly can make or break a loan, and turn a pre-approval into a real approval. It is essential for loan officers to be able to calculate income for borrowers accurately in a timely manner. Whether someone is retired, wage-earner or self-employed, it is imperative to present the applicants income properly, so that underwriting will give the applicant a fair risk assessment. There are brief descriptions for the types of income for loans below:

Wage earner: Wage earners receive a wage or salary from an employer. They do not own more than 25% interest in the company they are working for. Compensation is based on hourly, weekly, monthly or semi-monthly basis.

Bonus or Overtime: Bonus or overtime is compensation in addition to an employees straight salary or hourly wage. Must have a 2 year history. Will be averaged for the last 2 years unless declining, then the past 12 months will be averaged.

Tips or Gratuity: Tips can be supplemental income in addition to an employees base earnings or make up all of the earnings. Must have a 2 year history. Will be averaged for the last 2 years unless declining, then the past 12 months will be averaged.

Commission: Commission income is a fee or a percentage paid to an employee. 2 years tax returns must support borrower has received commission income for last 2 years. This is determined by consistent earnings or gradual increases in the last 2 years. Will be averaged for the last 2 years, unless declining, then the past 12 months will be averaged. 2106 expenses found on Schedule A must be deducted from total earnings. Satisfactory explanation must be provided to explain decline in earnings.

Self-Employed income: Self-employed borrowers are those who are principals of a corporation, controlling partners or sole proprietors. 2 consecutive tax years of consistent earnings, in the same business, are required history.

When self-employed income is received directly from a business entity in which the borrower owns more than 25%. Income must be reported as a sole proprietorship, partnership or corporation. When borrowers are operating a business on a commission basis such as 1099 earnings that is very common for sales people, insurance sales, and realtors, income is typically reported on Schedule C.

When borrowers need on investment income to show for income purposes, like interest, dividends or capital gains . Income is reported on page 1 of 1040s and supporting schedules must be included. All income will be analyzed from underwriting. In most cases they will average the last 2 years of income.