Help! How to provide proof of income for the current year?

Question

Hey Everyone,

I unexpectedly found myself diving into (what seems to be) a really solid deal, much sooner than I had expected. I'm worried that I have no chance of being approved for a loan considering my current situation. The property is listed at $120,000. Going for 4% or 5% down. I'm 21 years old. Unfortunately, before my current job, I wasn't making any kind of money that would put my debt-to-income ratio in a good spot. Since February I've been delivering for domino's with the sole purpose of aggressively saving for a duplex to house-hack. My Gross earnings so far this year have been $17,000. ($8,000 of which is reported tips) I know also work for DoorDash as well, so theres extra income there. I've managed to get my savings to $12,000.

Anyway, I'm under the impression that lenders use your tax returns to verify your income. If they use my 2019 return, that would be very underwhelming. Is there anything I can do to apply this years income? I'm also under the impression that lenders typically want to see 2 years of income history. Is this a deal breaker? Am I screwed? Can I file my taxes early or quarterly to circumvent this?

Would really, really appreciate any insight and advice, thanks all.

Edit: Also! The fact that the property will be producing income would aid in my debt-to-income ratio right? Is there a way I can account for that income to help get pre-approved? When would I do that, and would I need a copy of the current tenant's lease?

Dion McNeeley · Answer

Hi @Eric Lilly hopefully I can help.

You are correct, most lenders will require two years of tax returns to prove income. On top of this rental income isn't counted in your debt to income ratio until it has been claimed on tax returns too. Once you have a couple years of tax returns showing rental income then it is possible that some lenders would consider the future rental income in your dti. (Rental income is considered at 75% of the total rental amount)

You may have better luck with non traditional lenders. Some call this hard money. But the rate is often higher and the loan will probably be an adjustable rate loan. But it is a way to get started.

When buying properties there are two classifications. Single family house/small multifamily and multifamily. Anything with 4 units or less is considered a house by lenders. Like a duplex or fourplex. If a place has 5 or more units it is considered a commercial property.

Commercial loans do not factor in your income. So one way to get started without proof of income or proof of rental income would be to get a commercial property first. The barrier to entry though is the much larger down payment.

I would connect with some lender and see what you qualify for. Try credit unions or a company like fairway mortgage.

Good luck.

Help! How to provide proof of income for the current year?

1 Reply