Additional Forms of Income That Can Help You Qualify For a Mortgage

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You’ve found your dream home. There’s one problem: Your monthly household income needs to be higher. You can’t qualify for the mortgage you’d need.

Adding other streams of income could improve your application and qualify you for a higher loan amount. Anything from monthly alimony payments to Social Security payments can count toward your monthly income—and if it’s enough, you might be able to afford a bigger budget after all.

How to Show More Income On Your Mortgage Application

Suppose you want to show more income on your mortgage application to qualify for a bigger mortgage or better loan terms. In that case, you can include alternative forms of income to supplement your primary income.

There are two keys to using alternative forms of income. First, you must be able to document every type of income you hope to use to qualify for a mortgage.

Secondly, no matter what income streams you use, most lenders want your total monthly debts—including your estimated new mortgage payments—to equal no more than 43% of your gross monthly income.

If you can meet this threshold, you should qualify for a mortgage, whether you’re relying on straight employment income or a mixture of rental income, alimony payments, and disability awards.

Additional Types of Income

Here is a look at some of the non-traditional forms of income that might help you qualify for a mortgage.

1. Alimony payments

With some stipulations, you can count monthly alimony payments as part of your income. You must show documentation that your alimony payments will last for at least the next three years.

You must also prove that your payments have come in each month as scheduled for at least six months. Lenders request this to ensure that your future alimony payments will arrive when they’re supposed to. If they don’t, you might struggle to make your mortgage payment. Lenders want to avoid dealing with late or missed payments.

2. Investment income

Interest payments and dividends are most likely the only form of income that you can use from investment returns to help you qualify for a mortgage. According to Fannie Mae’s guidelines, you must first prove that you own whatever assets generate these dividend and interest payments.

You must then provide documents showing the interest and dividend income you received from your assets during the last two years. Lenders will usually average the investment income earned during these two years and use that figure when you apply for a mortgage.

3. Disability payments

Do you receive monthly disability payments because of an injury you suffered while at work? You can use these payments as qualifying income when you apply for a mortgage loan.

You’ll first have to provide your lender with a copy of your disability policy or benefits statement. Your lender will use this to determine whether you qualify for disability, how much you receive, and how often your payments arrive.

Lenders will only count disability income if it is long-term, meaning it doesn’t come with a pre-determined end date. Lenders want to ensure you can afford your monthly mortgage payment five, seven, or 20 years from now. If your disability payments are scheduled to disappear next year, lenders won’t let you use it as qualifying income.

4. Social security and pensions

Suppose a mix of Social Security or pension payments plus other monthly income gives you enough monthly dollars to fall under that 43% debt-to-income threshold. In that case, you have as good a chance as anyone of qualifying for a mortgage loan, assuming that your credit score and other factors are solid.

5. Rental income

Do you rent out an apartment? You can use that monthly rent as a form of income.

You must be able to show proof of your rental income, meaning that you must list this income on your yearly income tax returns. Your lender will study your return to determine whether your rental income has been stable for two to three years. Your lender might only accept it as qualifying income if it has been.

6. Part-time income

If you have any part-time income on top of your full-time job, this could qualify you for a better mortgage. Lenders will require proof that you’ve earned your part-time income for at least two years. In other words, you’ll need to claim this part-time income on your taxes.

As long as you provide proof of income and the lender can see that it’s reliable, you can qualify for bigger mortgages or better loan terms.

Dan Rafter

Dan Rafter has covered real estate, mortgage and personal-finance news for more than 15 years, writing for the Chicago Tribune, Washington Post, Consumers Digest and many others. A graduate of the University Illinois with a degree in journalism, he is editor of Midwest Real Estate News magazine and blogs on commercial real estate for that publication at rejblog.com, in addition to being a contributor for Refi.com.

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