*disclaimer: Not all individuals will qualify for each loan type and/or scenario. Please contact me to see if you'd qualify for these loan products and/or discuss your options.
Before we begin with this answer, lets tackle another question that you might be asking yourself. What's the difference between gross and net income? Gross income is your earnings before taxes, whereas net income is your wages after taxes.
Now that we're clear on what is what, lets dig into what loan officers use when it comes to qualifying borrowers for loans.
Loan officers will almost always use GROSS income when it comes to qualifying you for a loan. There are a few reasons why we would do this. First, everyone is qualified based off of the same guidelines.
Net income can vary from person to person, and different people may even be more strict in their definition of net income, defining it instead as income that is available after all current debts are paid off. For instance: Some may find themselves in a higher tax bracket, others may have medical insurance taken out of their paycheck, and some people may even have to pay for cable once their paycheck comes through the door.
With so many variations happening, it makes sense to focus on gross income and qualify borrowers on an even playing field.
Another reason loan officers use gross income versus net income is because borrowers usually have a better idea of what their gross income is when they start their application. How many borrowers can say "Hey! On my contract it says that I make (insert dollar amount here) annually." Or " I make (insert dollar amount here) an hour."
Most, if not all borrowers can list off their annual salary or hourly wage in the blink of an eye.
How many borrower's can say "I make (insert dollar amount here) regularly after taxes"?
Some will be able to, but most will jump to their first instinct, which is to say that they make a certain amount annually or hourly.
For more information on gross income and net income, and why loan officers generally will use one over the other, contact me today! I'd love to help you understand more, and get you excited to see what loan options are available to you.
*disclaimer: Not all individuals will qualify for each loan type and/or scenario. Please contact me to see if you'd qualify for these loan products and/or discuss your options.
Brayden Ramsay NMLS #1997195
Momentum Loans NMLS #1606597
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