Last week, I discussed how to calculate income for the purposes of obtaining a mortgage for wage earners. The process is usually quite simple, but there are a few things which can come up that can throw your income calculations completely out of whack. And if you are looking to buy a house right at the top end of your budget, these little trip-ups can take your from an acceptable to an unacceptable level. And with the new Dodd-Frank legislation which took effect in January, much of the wiggle room we had is gone.

One of the most painful pitfalls for any would be buyer comes when overtime, bonus or commission income that a client is expecting to use to qualify for a mortgage cannot be used. There are a number of reasons why we might not be able to use this income to qualify you, but the most common reason is time. If you have not been consistently earning these types of income from your employer, or if you cannot show that this source if income is likely to continue into the future, we need to exclude this income. So if you are in a commission only industry or if your income is heavily derived from overtime or bonuses, you might not be able to qualify to buy the house you thought you could.

Another common issue is personal write offs. The most common are mortgage interest, charitable donations, and unreimbursed business expenses. Any of these write offs bring your taxable income down and, thus, your income down when trying to qualify for a mortgage.

If you are in the market for a new house and don’t know what your current annual income is for the purposes of qualifying, please contact me and I will help you figure it out. And if you have any other common trip-ups for calculating income for wage earners that you would like to share, please leave a comment.