One major factor in your ability to secure a mortgage is your income. You must show lenders that you can afford the mortgage as well as your other monthly debts and still have money left at the end of the month. Lenders need to make sure beyond a reasonable doubt that you can afford the mortgage before they can allow you to sign on the dotted line.
Just how do you prove your income? It depends on the type that you earn. For example, if you work on commission and it totals more than 25% of your total income, the lender will need your tax returns. If your income is just a base salary or is made up of less than 25% commission and/or bonuses payslips will work.
Covering 30 Days
Your payslips must cover at least the last 30 days. Lenders use these documents to make sure your income adds up to what you say you make. It’s not enough to say that you make $60,000 per year. You have to prove it. Even if you provide your tax returns for other purposes, you must show lenders that your year-to-date income is on par with what your tax returns show.
Because you only need to cover the last 30 days, the number of payslips you must provide will vary based on your pay schedule:
- Weekly pay – You must provide the last four paystubs
- Bi-weekly pay – You must provide the last two paystubs
- Monthly pay – You must provide the last paystub you received
Paystubs Before the Closing
Some lenders may also make you provide a paystub right before the closing. This reconfirms the fact that you are still employed. This is common practice when a lot of time passes between the application and the closing. If it’s a matter of a few months, lenders must confirm that you are still employed. Some lenders just conduct a verbal verification of employment, but others may require another payslip.
The Other Income Documents
Your payslips aren’t the only income documentation lenders will require. Along with seeing your current income, they also need proof of your past income. If you make a base salary or don’t work on commission, you can provide your last two years of W-2s. These documents will show lenders your salary over the last two years.
If you work on commission or bonuses, the lender may request your W-2s a well as your tax returns. This gives them a chance to determine if you have any unreimbursed expenses that coincide with your employment. If so, the lender will deduct those expenses from your income for qualifying purposes.
This is all in addition to your paystubs. Lenders use the W-2s or tax returns to see your pattern of income. They want to make sure your income either stayed stable or increased over the last 2 years. The payslips will then confirm that you are on the same path this year as your W-2s or tax returns show.
The lender will likely ask for your payslips when they pre-approve you for a loan. They look at paystubs first and then ask for further documentation if necessary. Have your payslips ready when you know you want to apply for a loan so that you can get the process right away.