First, Credit Reportis fundamental. It is more than a score; it shows your full financial history. Any past mortgage late payments or defaults will likely cause a loan denial. Recent bankruptcies or other negative financial issues will also make it difficult. Over680, most cases are OK. A score of 740 or higher is considered stable. We use the middle score among the three credit bureaus.
Second, The down payment amountshould be over 3%. However, 20% or more is common. Especially if your tax‑reported income is low, a down payment of over 20% is usually required.
The conditions above are simple. If you meet them, it’s OK; if not, it’s difficult.
Third, Howdo you document your income? The loan amount you can qualify for is roughly about 3.5 times your income. So if your income is $100,000, you can qualify for approximately $350,000.
The simplest method is Tax return.This includes your wages and any other regularly receivedincome. This is called a Full Doc or QM loan.
If you haven’t reported enough income on your taxes for any reason, the lender will not use your tax returns at all. This is called a No (income) Doc or Non-QM loan. These usually require a down payment of over 20%. So how do you document your income in this case?
1099 - “All 1099s received up to the tax‑filing period are combined and counted as income. Typically, 50–90% of that amount is recognized. Bank account statements showing the deposits are often required as well.
VOE - For W‑2 employees, the employer, HR, or a manager can issue an employment verification letter. The lender will call to verify its authenticity.
P&L - A CPA or EA can simply write a letter stating this person’s revenue, expenses, and profit for the previous year. The lender will call the tax professional to verify it.
Bank Statements - We review the deposits made into your bank account over the past year and count about 50% of the deposit amount as income.
DSCR - This is when the rent you would receive from the property is counted as income. Lenders typically recognize up to 75% of the rental income when qualifying for the loan.
Full Doc - If your tax‑reported income is not sufficient, you can combine it with other sources to qualify.
Asset Utilization - This is a simple method. your current cash and cash‑equivalent assets are added together and divided by 60 to calculate your monthly income. So if you have around $500,000, it means you can be credited with roughly $8,300 in monthly income.
Based on this information, you can easily calculate if you qualify for a loan.
For example, with a 692 score, 10% down, and $150k in reported income, you can get a $500k loan. With a 780 score, 20% down, and the same income, you also get $500k. Simple.
But if you have a 740 score and 30% down, but only $30k in reported income? Then you’ll only get about $100k. In this case, you can't buy a house with that tax return, so we switch to No-Doc. Then you can get a loan using one of the other methods above.
Typically, the interest rate for a Full Doc is 0.5% to 1.5% higher than a No Doc.