Income Calculation

🧮 For proper income calculation (semi-simplified for purpose of this

study) the mortgage underwriter will use the following calculation to figure

‘Gross Monthly Income’. (please note there are many variables that may

impact income calculation, including bonus pay, commission, time on job,

salary, hourly, reimbursable auto expenses to name a few – see FannieMae

guidelines in Appendix):

➕ Add previous year-end W2 total income (before any deductions)

➕ Add current year-to-date gross income (if wage earner)

➗ Divide by number of months (i.e., 12 months plus number of months

year-to-date)

= Gross monthly income

If salaried earner or full-time hourly and on the job for 2+ years you can take

the gross pay per pay period and multiple by number of pay periods in the

year, for example:

➕➕ Add gross income for pay period

✖ Multiply by 26 weeks if paid bi-weekly or 52 weeks if paid weekly or

12 months if paid monthly

= Gross monthly income

If self-employed:

➕ Add Adjusted Gross Income (AGI) from personal tax return two

years ago

➕ Add Adjusted Gross Income from personal tax return from last year

➕ Add any depreciation from form 4562 for last 2 years

➗ Divided by 24 months

= Gross monthly income

Please note for self-employed borrowers adding back Depreciation of

equipment or property from your Depreciation schedule is the same as

Adjusted Gross Income for proper income calculation. Also, if your business

pays for your auto loan or other debts on your credit, we can remove those

from your DTI.

If self-employed for seven years or more only use the most recent year-end

AGI and Depreciation for income, divided by 12 months.