Seeking first loan, should I wait for slight income increase?

4 Replies

Cheers to breaking the ice on my first newbie question!

I planned on getting approved for a loan this week until I was recently informed by a manager I could receive additional hours within ~ 1 month.

These hours would provide additional income of ~$520 per month BEFORE taxes. I would physically take home ~$200 more per month after all payroll deductions.

Should I wait another month for my income to increase prior to applying for a loan, or go ahead and get approved this week as planned? I know this additional income is nothing to write home about, but I also know this would affect my debt to income ratio. Outside of that I'm not too familiar with the loan process in regards to what amount of money would actually make a significant difference when getting approved. To wait or not to wait? 

I have excellent credit, zero debt, and a decent amount of cash in the bank. I'll have about 20% of the purchase price in the bank but I will not be putting 20% down, this is saved for minor updates and to cover for unexpected vacancy expenses, I'll be going for an FHA.

Something about typing this post up has my already knowing the answer, but I am still curious as to your opinion. Thanks in advance!

Use this DTI calculator - DTI calculator

If your DTI is below 45% percent you should be able to get a conventional loan if your credit score is above 680. When it comes to reserves, at the time of closing you should have 2% of the total loan amount + 2 months PITIA (for the first 4 properties). The reserve requirements get tougher after 4 properties and again after 6 properties. 75% of your 401k are usually accepted as liquid assets. As long as you meet these requirements you don't need to wait for an income increase if you plan on using conventional financing for your first deals.

It's highly unlikely that underwriting will count your recent income increase due to additional hours. They usually want to see a track record of two years with hourly employees. 

If you want to bypass these requirements you can give Taylor Langford @Lima Capital One a call (I can PM you her number). They offer fix and flip loans and 30 year mortgages but the interest rates are significantly higher than with conventional loans. 

See Reserve Requirements

@Brandon Turner a DTI calculator would actually be an awesome BP tool!!

Cory -   it doesnt  sound like you will need  this extra income for  qualifying so no need to wait 

fyi  if your hours  will be  guaranteed and stable   , then the  higher income  should be usable ...if the  hours  are not guaranteed (  eg.. overtime ….seasonal …..not consistent ) , then  likely to not be usable

Going FHA is not that wise as the FHA mortgage insurance is permanent and wont be able to be eliminated unless you refinance the loan plus you will have a large upfront mortgage insurance that you have to pay at closing ….consider using a conventional loan as the mortgage insurance will be able to drop off or be eliminated in the future