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Can I use previous W2s and a current YTD paystub if the current has OT
Can I use previous W2s and a current YTD paystub if the current has OT?
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When applying for a mortgage, you can use past W-2s and a current year-to-date (YTD) pay stub. This is even if the latter includes overtime income, if OT income has been seasoned for the past two years and it is likely to continue for the next three years. Nevertheless, there are factors to consider:
Salient Points:
Income Stability:
Lenders prefer that an applicant has had a steady income over some time. If overtime forms part of your regular income and has been so for the last 24 months, they may consider it when calculating your qualifying income. In this case, they will average such earnings for the past two years to determine what is acceptable.
Verification of Overtime:
To verify this fact, lenders usually expect employers’ Verification of Employment (VOE) to show that overtime work is ongoing and predictable.
Documentation:
Two of the most recent years’ W-2s, recent pay stubs (including one with YTD earnings), and sometimes an employer’s letter are usually required. Additionally, the lender may request tax returns if there are large amounts of OT or other types of variable income.
Income Calculation:
Suppose an employee’s overtime pay tends not to be constant. For example, annually varying the amount earned within consecutive 24-month periods could affect how much money one can qualify for as a loan. In such cases, there might seem to be significant differences between what one has made this year through extra hours worked beyond regular shifts and what was earned during any previous calendar year doing the same thing. Using previous W-2s and current hourly or salary on the employment offer letter as qualified income is customary. Plus, the past two-year average overtime income (verified via employment verification) can be used when applying for a mortgage. Ensure that the overtime income is regular and well documented since lenders want proof of its stability. Overtime income is verified by the employer via employment verification. The chances of overtime income continuing for the next three years need to be likely. Talking with your lender can help clarify what portion will be used in calculating qualifying income based on these documents.