The most common myth is that people believe overtime can increase the amount of money that a lender is willing to loan you. This is both true and false because in order for overtime to count, there has to be certain criteria’s that you need to meet. If a person has been doing overtime for the last few months just to increase the amount of income they make per month, they most likely believe that they can show that as their gross monthly income, and expect lenders to give them a higher loan. The only problem is that lenders need to see consistency in this overtime. Meaning that a person who uses overtime in their overall income, needs to obtain overtime for at least a year or two, consistently, rather than on and off. The reason being is that lenders want to count the income that is stable, rather than income that can change over time. When jobs are seasonal and business is slow, there may be no overtime and that lowers your income even though you put down you had a higher income, which increase your loan and payments. Without that extra overtime income, you have a possibility of falling behind on your income, so most lenders like to disregard overtime unless it’s consistent.
When overtime is used correctly, it can help you obtain a higher. For example, you make $800 a week, by calculating your debt ratio and using a 28% front end ratio, over a 30 year fixed rate of 7%, you are qualified for a loan of $123,000. Now if you have overtime on this, let’s say around $300 more, you can calculate your debt ratio with the same factors, and you are qualified for a loan of $170,000. Overtime does help with the loan, as you can see, but the only problem is that the overtime has to be consistent.
If you wish to include your overtime in your income when applying a loan, your loan officer will need to match up your W-2 forms to make sure that the overtime is consistent. Also they may have your boss vouch that you have done consistent overtime, and that in the future you will have the opportunity to continue overtime.
