How Is My Income Calculated? - The type of income you receive will determine how your lender calculates what you make. For example a self employed borrowers income will be calculated differently than someone who is paid hourly. While it is impossible to explain how every type of income is calculated, here are some of the most common types of income and how they are typically viewed by lenders.

Most overtime/bonuses/commissions must be received for 2 years and will be averaged over a 24 month period.

If your income cannot be calculated due to lack of traditional employment, it may be possible for you to qualify for a no documentation, or "no doc" loan which eliminates the requirement for verification of employment.

If you are self employed and write off most of your earnings as expenses, there are stated income programs available to accomodate you.

For a salaried employee who receives a base pay only and no overtime or bonuses, his or her monthly income will be calculated by dividing their yearly salary by 12 months. The calculated number is the number that will be used for calculating the borrower's debt to income ratio.

Twelve months of Personal bank statement deposits can be used to calculate your annual income as long as the account is in your name only. If the account is a join account you can only use 50% of the annual deposits.

All income calculations are done with income before taxes are taken out.

Your income can be calculated differently depending on the objective of the Mortgage Professional you work with. With so many different ways to calculate a persons income its best to let the mortgage professional decide which way to go.

If you receive income that is not taxable, such as social security, banks will "gross up" the amount received, that is, to use a figure higher than the actual income to qualify for the loan.

If you are a W-2 employee and work a second job most lenders will want to see at least 6 months job time to use the second jobs income. They will also be looking for a consistent earning trend for that 6 month period.

If you receive rental income, most lenders will use 75% of the gross amount.

How credit scores are calculated? - Designers of credit scoring models review a set of consumers – often over a million. The credit profiles of the consumers are examined to identify common variables they exhibited. The designers then build statistical models that assign weights to each variable, and these variables are combined to create a credit score.

Models for specific types of loans, such as auto or mortgage, more closely consider consumer payment statistics related to these loans. Model builders strive to identify the best set of variables from a consumers past credit history that most effectively predict future credit behavior.

The three major credit bureaus, Experian, Equifax, and Trans Union all use their own unique scoring models. Most lenders will look at all three of your credit bureau reports and scores, commonly referred to as a tri-merge report. The difference between the three credit bureau scores can be significant due to the different scoring models that each bureau uses.

Most lenders will use the middle of the three credit bureau credit scores when reviewing your loan application file. There are some exceptions. If you would like more information about the alternative programs, please call me at 414-303-1215.

Each credit repository, Equifax, Experian, and TransUnion, all update their credit scoring models every now and then. Just like with a computer and its operating system such as Windows 95, Windows 2000, Windows XP, etc... the credit bureaus update their technology and their scoring models as well. Not all lenders use the same models for each different credit bureau. Some lenders use older models because they are usually cheaper while others use the most updated model. This is one reason why there are sometimes discrepancies or variances from lender to lender on actual credit scores.