How to Calculate Income

A loan officer must correctly calculate a borrower’s earnings to provide the appropriate product and pricing advice. One of the most common mistakes of new and seasoned loan officers is to take an application, guess at the income, and hope that the processor or underwriter can determine the correct answer.

With the exception of self-employed income, calculating a borrower’s standard income is fairly simple. Access the link below to calculate non standard income like dividends and social security income. Here are some general guidelines for standard income:

Income Type:

Hourly Income

40 hour work week

Multiply the hourly rate times 2080 and divide by 12.

Documentation

30 days worth of paystubs and a copy of the W2 from the preceding year.

Less than 40 hour work week

Multiply the hours worked per week by 52 and divide by 12.

Documentation

30 days worth of paystubs and a copy of the W2 from the preceding year.

Bonuses, Commission and Overtime

Use a yearly average and divide by 12.

Documentation

2 years of income tax returns.

IRS Form 2106 for commission earners.

Salaried Income

Paid every 2 weeks

Multiply 2 weeks worth of paystub times 26 and divide by 12

Documentation

30 days worth of paystubs and a copy of the W2 from the preceding year.

Paid 2 times per month

Multiply 2 weeks worth of paystub times 2

Documentation

30 days worth of paystubs and a copy of the W2 from the preceding year.

Self-Employed Income

Add depreciation back into Schedules C and E of the tax returns for the last 2 years.

Reduce rental income by 25% for the last two years.

Add total income for the last 2 years and divide by 24.

Documentation

2 years of personal tax returns.

2 years of business tax returns and accompanying schedules.

2 years of W2s.

2 years of 1099s.

2 years of K-1s (if applicable)

Non Standard Income