Pay Stubs as the Ultimate Proof of Income for Getting a Mortgage
While banks, credit unions, and mortgage lenders work hard to offer Americans various credit options to become homeowners, they still need a guarantee that they will get their money back with interest. Financial institutions conduct soft and hard checks to assess their prospective clients' borrowing and repayment history, enabling them to have a 360-degree view of their past financial reputation. If that is found satisfactory, lenders verify the person's income. The key documents displaying the customer's solvency are their pay stubs.
Pay Stubs Made Plain
What is a pay stub? This slip (also called a wage or earnings statement) is issued by the organization where a person works and shows how much the employee has earned during a specific period. The document contains their gross pay (with the breakdown into hourly rate, bonuses, overtime, tips, and commissions), deductions (such as taxes, union dues, retirement contributions, Medicare, etc.), net pay, which remains after all deductions are made, and the earnings and deductions since January 1st of the current year, aka Year-to-Date (YTD) totals.
Pay subs are distributed across the enterprise as often as workers get paid according to the payroll schedule, either weekly, bi-weekly, or monthly. Traditionally, a sub was attached to the paycheck as a detachable slip. Still, with more and more businesses embracing digitalization of their workflows, companies upload an e-copy of the document to the payroll portal, send it to employees via email in PDF format, or enable them to view it through the enterprise’s mobile app.
How many pay stubs does a mortgage lender need for income verification? The number of slips doesn't matter as long as they cover the most recent 30 days. If you are paid every week, you should submit four stubs; if you are paid once a month, one stub will do the job.
And now comes the crucial question: are pay stubs absolutely necessary for getting a mortgage?
A Mortgage without Pay Stubs: Is It Doable?
The answer is both yes and no. If you apply for a conventional, jumbo, USDA, VA, or FHA loan, pay stubs are non-negotiable components of the financial documentation package, so it is a no. It is a yes if the above-mentioned loan types are unavailable to you due to the stringent underwriting conditions imposed on traditional mortgage holders. Most self-employed workers belong here, as well as some other people whose financial profiles don't meet the standards set by federal government agencies and government-sponsored enterprises (such as Fannie Mae or Frederick Mac). If this is your case, a non-QM mortgage loan is your only option.
Previously known as no-doc loans, Non-Qualified (non-QM) mortgages are considered riskier for issuers than other loans, so not all lenders provide them. And if they do, they try to hedge potential risks by charging higher interest rates, fees, and closing costs, requiring larger down payments, and including prepayment penalties. So non-QM loans come with different disadvantages for borrowers, but they are more flexible regarding financial documents that prove a person's income. The documents required to apply for a non-QM mortgage vary by loan type.
- Bank statement loans. To receive them, a self-employed individual should provide a YTD profit and loss statement, a personal/business bank statement (covering 12 or 24 consecutive months), and either one of the three documents: a business license, a 1099 history, or a certified public accountant (CPA) letter.
- Profit and loss statement loans. A personal/business bank statement pertaining to the last 12 months and a YTD statement are a must.
- 1099 income loans. Again, a 12-24-month bank statement plus a 1099 form covering the same period are what is expected from you.
- Asset depletion loans. You should provide whatever proof of your liquid assets, such as stocks, bonds, savings, IRAs, retirement savings accounts (often called a 401(k)), etc.
- Investor/Debt service coverage ratio (DSCR) loans. This type of loan is preferred by real estate investors, who should provide a lease agreement and a professional appraisal indicating the anticipated market rent.
In addition to these financial documents, an applicant should provide such general documents as a government-issued ID, a current credit report, and property papers (purchase agreement, property appraisal, and preliminary title report).
Naturally, such a deluge of forms and slips seems bewildering to the average mortgage seeker. How not to get lost among all this red tape? The only way is to hire seasoned professionals in the domain.
How LBC Mortgage Can Help You
We have been providing loans and related services for 18 years in 10 states and nationwide, so we know this field like the back of our hand. As a high-profile mortgage lender, our company has several types of non-QM mortgage loans for you to choose from: ITIN loans, non-US resident loans, no-ratio mortgages, and VOE loans. Our qualified personnel will brief you on the peculiarities of each type and recommend the most suitable mortgage program for your financial situation and use case.
Book a consultation at LBC Mortgage to discover details of non-QM loans where no pay stubs are required and also learn about traditional mortgages of various types.
Pay Stubs in a Nutshell
Pay stubs are documents issued by employers each time an employee is paid, displaying the person's gross and net earnings and the deductions from them. These documents reflecting the last 30 days' compensation serve as the primary income verification for Americans applying for a conventional mortgage loan. If pay stubs are unavailable to an individual because of their job specifics, they can choose among several non-QM (non-qualified mortgage) loans, in which they submit other financial documents (a bank statement, a business license, a 1099 form, a CPA letter, etc.) to a lending agency.
