DECLARING INCOME AS AN EMPLOYEE

For the purposes of securing a mortgage loan, the W'2 employee has a far easier time of it when compared to the self-employed borrower. Lending institutions actually make it realtively easy for a W'2 employee to qualify.

Basically the gross income, not the take home pay, but the gross monthly income is the determining factor for qualification purposes. If on your annual W'2 statement you made $48,000 and your take home pay was closer to $32,000, you will be qualified at the $48,000 income level. All income for the purpose of acquiring a loan is determined on a monthly basis and so your gross annual income of $48,000 would be adjusted to $4,000 per month.

You will be required to show 2 years of tax returns and your income will be averaged over a 2 year period. However, if you are a salaried employee, you can ask for an exception, and try to get your qualifying income increased to reflect the new higher salary, if in fact you received a raise sometime during the 2 year period.

If you were out of work for several months and then returned to work, in essence got rehired into a job that is similar to the one you had before you were unemployed, there are some lenders that will qualify you, even if you have only worked for a few months at the new salaried income.

When determining your eligibility to qualify for a loan, the debt to income ratio is similar to the self-employed borrower. The amount of debt that you will have on your mortgage still needs to be under 45% of your overall monthly income. In the mortgage debt calculation you will need to include the principal and interest of the loan, as well as your property taxes and homeowner's insurance costs. The property taxes and insurance are determined on a monthly basis by taking the annual costs of each and dividing by 12 to get a per month number. 

Furthermore, your total debt typically cannot be over 50% of your income. This will include anything that shows up on your credit report including any car payments, credit card payments, or any other installment loan.

One final note: If you are an employee of a C Corporation, even if it is your own C Corporation, you will be able to enjoy he same privileges as a W'2 employee. You will have to provide the lender with your corporate tax returns along with your personal tax return, but your employee status will be the same as if you were working for an employer of another company.