Five routes

There are only five ways to prove you can pay

Every mortgage file in the country is built from these five. Most borrowers use one. People whose income does not fit a W-2 box usually need two, and choosing which two is most of the job.

Paystubs and W-2s

The straight strand. Salaried and hourly income, evidenced by paystubs, W-2s and a verbal verification of employment.

You hand over

Most recent 30 days of paystubs
W-2s for the last two years
Verbal verification of employment, taken shortly before closing

Watch for

A gap of 30 days or more in the last two years needs a written explanation.

The whole route

Bank statements

Twelve or twenty-four months of deposits, with an expense factor applied. Built for owners whose tax return is written to minimise tax, not to qualify for a loan.

You hand over

12 or 24 consecutive months of business bank statements
A business licence, or a CPA letter confirming you own the business
Ownership percentage, if the business has more than one owner

Watch for

A 50% expense factor is a default, not a law. A CPA-supported factor can be materially better or worse.

The whole route

Profit and loss

A CPA-prepared profit-and-loss statement, sometimes with 1099s alongside it. The shortest route when your accountant already has the numbers.

You hand over

A profit-and-loss statement covering 12 or 24 months, prepared by a licensed CPA, EA or CTEC preparer
1099s for the period, where you are paid that way
Two months of business statements to support the P&L

Watch for

The preparer must be independent of you; a statement you prepared yourself will not be used.

The whole route

Assets

No income used at all. A verified pool of liquid assets is divided across the term to produce a qualifying figure. Common for retirees and for people between ventures.

You hand over

Two to three months of statements for every account being counted
Evidence that the assets are yours and are not borrowed
Confirmation that retirement accounts are accessible without penalty, where they are counted

Watch for

The discount and the divisor differ sharply between programmes; they set the answer.

The whole route

Rental income

The property qualifies, not you. Market rent is compared with the full housing payment to produce a debt-service coverage ratio.

You hand over

A lease, or an appraiser’s market-rent schedule (Form 1007)
Evidence of reserves — usually several months of the housing payment
Entity documents, if you are borrowing in a company name

Watch for

Some programmes deduct a vacancy allowance before the ratio is worked out; some do not. It moves the answer.

The whole route

Questions

Can I use more than one route?

Yes, and most people with awkward income do. A salaried job plus a side business is a paystub strand and a deposits strand. A landlord with a day job is a paystub strand and a rent strand. Combining routes is normal; what matters is that each strand is documented in the way its own route requires.

Which route prices best?

Full documentation — paystubs and W-2s — almost always prices best, because it fits the qualified-mortgage box that the secondary market buys most cheaply. Bank statements, profit-and-loss and asset qualification sit outside that box and carry a premium. Rental-income files are priced on the property. The right comparison is not against a rate you cannot document.

What if none of these describe me?

Then say so plainly to whoever you talk to, early. Most declines that go wrong are files pushed down the wrong route because nobody asked the first question. Restricted stock, foreign income, a trust, a business less than two years old and a recent career change all have answers, and none of those answers is the standard one.