ON THE MARKET FRIDAY, MAY 7, 1993-3 Qualifying income information vital in buying a home By RICK COSTA One of the challenges loan officers face when conducting a prequalification interview for a mortgage borrower is identifying the appropriate qualifying income figure. The qualifying income represents the income figure upon which the underwriter will base the decision to either approve or reject the loan. When a loan officer pre-qualifies a borrower for financing, they are not pre- approving the borrower. Rather the loan officer examines the financial information to determine whether the borrower can expect a loan approval once everything is verified. Loan approval can only come from the underwriter representing the funding source upon reviewing the completely processed loan package. When first asked how much money they earn, borrowers working for wages will often disclose their net pay. The calculation to determine qualifying income for employees is based upon current gross income. Salaried borrowers are the easiest for verifying qualifying income since there is a contracted gross salary amount. Because current salary is what counts, it is not unusual to find situations where a borrower will not qualify for financing until a scheduled raise in salary takes effect. Employees who work for hourly wages also represent a straight forward determination of base pay as part of their qualifying income. Their current gross hourly wage rate times their normal work week hours establishes their gross weekly income. Weekly income is converted to monthly income by multiplying by 52 weeks to first establish annual income and then dividing annual income by 12 months to arrive at monthly income. Focus on finance Some employees hope to count their overtime pay and/or their annual bonus. This is acceptable as long as the lender can verify a continuing pattern of overtime or bonuses. It is normal practice to use the average of overtime pay or bonuses over a two year period as the amount to include as part of qualifying income. The need to average income over two years also affects employees who are compensated on a commission basis. Some borrowers are fortunate to have investments that provide income. Once again a two year average is often used in determining how much interest or dividend income can be included as part borrower's qualifying income. The underwriter must also be confident that this income will continue. Borrowers who use their savings for a down payment will have a hard time continuing to earn interest on those funds. Real estate investors require special attention. Positive cash flow from rental properties can lead to income, whereas negative cash flow adds to a borrower's expenses. There are several approaches to analyzing rental income which can lead to quite different results. Some underwriters rely strictly on an average of tax return data to determine the income or expense from rental properties. Fortunately, the tax return data is usually adjusted to add back the non-cash expense item of depreciation. Another common approach to analyzing rental properties is to subtract the (PrTT) principal, interest, taxes and insur- ance.expense from 75 of the rental income figure. Loan officers must deter- mine which approach to rental income will be used by the underwriter. Self-employed borrowers are at a disadvantage when trying to qualify for financing. A multi-year average of tax return income with some adjustments form the basis for calculating qualifying income for self-employed borrowers. All of the tricks used to demonstrate to the IRS that a self employed borrower isn't making money can make it difficult when it's time to seek mortgage financing. Nany self employed borrowers have been forced to locate special "easy qualifier" loan programs that don't require verification of tax return income. These types of programs usually require a larger down payment. Most of the "easy qualifier" programs have been discontinued. As a general rule, a borrower should be able to demonstrate a two year history in the same or similar line of work. This means a borrower who switches employment fields may need to wait two years before their income will be counted toward financing. Loan officers have learned to be quite creative in arguing on behalf of borrowers how a different employment represents a similar line of work. It should be obvious that establishing the appropriate qualifying income figure for a borrower can sometimes get quite involved. Bo rowers who are not sure how a lender will look at their income for loan qualifying purposes should consider scheduling a pre-qualification interview with a loan officer. Rick Costa is sales representative for Norwest Mortgage in Ukiah. Focus on Finance is written with the assistance ofDonaldL. Mitchell, dba Finance Magic. LIKE NEW...Double-wide mobile on landscaped lot in desirable location. Motivated Sellers. $42,000. LANDMARK HOME built in 1906..5 bd/3 ba, wood floors, high ceilings, frpl. remodeled kit, full basement. $210,000. FAMILY HOME...3 bd/2 ba, fenced yd. w/dbl. gar. Inspections complete! $148,000. CUSTOM 50's..2 story, 3 bd/2 ba Weatside. Storage galore, rec rm/bdrm., low maint. yards & deck. $189,500. BACK ON THE MARKET...Don't let this charmer slip through your fingers. 2 bd w/parklike back yd. $123,000. CLEAN, VACANT...Ready to go 2 bd on corner lot w/new roof & fenced yd. $101,000. 2.74 ACRES...W/3 bd/2 ba hilltop home w/views from a wall of windows, extra rm, work studio & Ig. garage. $255,000. EXQUISITE...3 bd/2 ba home w/gourmet country kit. on beautifully treed lot in Brooktrails. $169,500. 20 ACRES in Ukiah w/pwr & water avail. A private West location. $110,000. NEEDS A HOME...38 Ac. w/barn, fenced pasture, pwr, phn & county rd. frontage. $89,000. 462-0555 800-859-2053 665 N. State St., Ukiah , OPEN 7 DAYS A WEEK REDWOOD TREES LINE UP jat the entrance to this 'cute westside cottage, llhe yard is nicely land- Iscaped & the interior is Jwarm & cozy. Great for -first time buyers. $69,500. NO ONE RUINED IT You know...the bad remodeling that has ruined so many charming westside homes. Not this one. Come ' take a look at this charming W. Mill St. cottage with hardwood floors & cute kitchen. Double garage | tool $121,500. • I AMONG THE VINES This half acre is bordered on 2 sid.es by vineyards Tucked away off Eastside Road (south of Talmage), this private 2 bed| room home has a large garage/shop. Rogma water. $142,500. , SPOTLESS! Well maintained 3 bedroom, 2 bath home backs up to orchard for pTaceM backyard entertaining. Comer lot plus spaciousdo*, car garage. Look to eastern foothills from cozy family room. $139.900. BIG THIRD ACRE LOT Lots of room inside & out at this York Estates home. Over 1900 sq fTof living with 3 baths & .spacious living & family rooms. Could also be used as separate living suite for inlaws. etc. $169,500. • MINI-FARM HAS IT ALL Beautiful, secluded country acreage with 2 bedroom home Inside & out are immaculate. Large garden area, lots o! fruit & walnut trees. New roof, paint & carpet. May be just the one you're looking for. $152,500. REALTY WORLD Nix, REALTORS 245 E. Perkins St. Ukiah (707) 462-7588 OPEN SATURDAY & SUNDAY SALLY SISSONS 838-0686 LINDA GOW 462 ^ MINNIE NIX-MOUEARY 463-2497 JOHNBOGNER 462-9477 MARIL-LYN 485-8106 JOAN DOOLEY 462-8268 JIM KOLLENBORN 485-0554 BARBARA NEECE 485-5530 DAVEFALLERI 277-7446 DARLENE SIMMONS 46 °- 8 ^ BRIAN TAYLOR 468-8394 RICK MOORE 463 11« JUDY CECCARELLI 462-7455 The right agent makes all the difference In the world —^^••••^^ OWN A PIECE OF HISTORY 100 year old Willits Victorian 3 bedroom, 1.5 bath home on 1.98 acres. Waits for your finishing touches with over 2000 sq. ft. New septic & new [foundation. $189,500. BEST VIEW IN TOWN? You decide when you preview this hard to find 3 bedroom, 2 bath home in the western foothills. Open floor plan with lots of windows, vaulted ceilings & dream kitchen. Master bedroom I opens to deck & hot tub. $235,000 TAKE A WALK! This 3 bedroom home is in a great westside Ukiah location. Just ] right for those wonderful evening neighborhood walks...or start your morning with an invigorating dip in your own built-in pod. $159,500. I COME SEE this lovely country home in the southern part of Potter Valley in quiet neighborhood. Many great features & spacious rooms throughout this well-maintained 3 bedroom, 2 bath home on .92+ acre. $198,000. MOBILE HOMES NO REPAIRS NEEDED HERE Inside & out looks like a model home. 1.35 acres, fruit trees, garden area plus large greenhouse. Two bedroom, 2 bath mobile, 10X12 family room with woodburning stove. Lots of upgrades. $142,500 LAND & LOTS BROOKTRAILS LOTS Beautiful lots; some flat, some with great views, all surrounded by towering trees. Something to please everyone. Price ranging from $18,500 to $28,000. Call for details. ATTENTION HUNTERS Here's your 600 acres with deer, bear & quail. Springs, creek & small cabin surrounded by timber & hardwoods. A buy at $360,000. I . ——^^^^ Maa< ^ Mt<i ^^ B ^^ B ^^|^^j| RESIDENTIAL INCOME , INCOME PROPERTY Three bedroom, 2 bath home & 3 townhouses. Centrally locat- | ed. Annual income is $27,000. Asking $237,950. CUTE COTTAGES Four cozy 1 bedroom cottages on corner lot in Willits. White picket fences & flowers in bloom add to the charm. Investors can take pride in ownership. 10x gross. $175,000.
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