You've found your dream home. There's one problem: Your monthly household income isn't high enough. You can't qualify for the mortgage you'd need.
Or can you? Sure, the income you and your partner make from your regular jobs might not be high enough. But what about the other streams of income that flow into your home every month? Adding anything from monthly alimony payments to dividend income from investments to Social Security payments might boost your monthly income by enough to help you qualify for the larger loan you need.
There are two keys to using alternative forms of income, though. First, you must be able to document every type of income you hope to use to qualify for a mortgage.
"The days of just stating your income and not having to prove it are long gone," said Peter Grabel, managing director for Stamford, Connecticut-based Luxury Mortgage. "Today, we need to see proof of any income you plan to use to qualify for a mortgage."
Secondly, no matter what income streams you use, most lenders want your total monthly debts - including your estimated new mortgage payments - to equal no more than 43 percent of your gross monthly income. As long as you can meet this threshold, you should be able to qualify for a mortgage - no matter if you're relying on straight employment income or a mixture of rental income, alimony payments and disability awards.
Here is a look at some of the non-traditional forms of income that might help you qualify for a mortgage.
You can county monthly alimony payments as part of your income, with some stipulations. You must show documentation that your alimony payments are scheduled to last for at least the next three years.
You must also show proof that your payments have come in each month as scheduled for at least the last six months. Lenders request this because they want to make sure that your future alimony payments will arrive when they're supposed to. If they don't, you might struggle to make your mortgage payment. Lenders don't want to deal with late or missed payments.
"If you have a deadbeat former spouse who forgets to pay every once in a while, that can hurt you when you try to use alimony as an income source," Grabel said.
Interest payments and dividends are about the only form of income that you can use from investments to help you qualify for a mortgage. According to Fannie Mae's guidelines, you must first prove that you truly own whatever assets are generating these dividend and interest payments.
You must then provide documents showing the interest and dividend income that you received from your assets during the last two years. Lenders will usually average the investment income that you earned during these two years and use that figure when you apply for a mortgage.
Do you receive monthly disability payments because of an injury you suffered while at work? You can use these payments as qualifying income when you apply for a mortgage loan. You'll first, though, have to provide your lender with a copy of your disability policy or benefits statement. Your lender will use this to determine that you do qualify for disability, how much you receive and how often your payments arrive.
Lenders will only count disability income if it is long-term, meaning that it doesn't come with a pre-determined end date. Lenders want to make sure that you can afford your monthly mortgage payment not just today but five, seven or 20 years from now. If your disability payments are scheduled to disappear next year, lenders won't let you use it as qualifying income.
Social Security and pensions
You might not think that you'll be applying for a mortgage loan after retirement. But people do. And when they do, they can use their Social Security payments and pension payments as part of their regular monthly income.
Lenders can't deny borrowers based on their ages. If a mix of Social Security or pension payments plus other monthly income gives you enough dollars each month to fall under that 43 percent threshold, you have as good a chance as anyone of qualifying for a mortgage loan, assuming that your credit score and other factors are solid.
Do you rent out an apartment? You can use that monthly rent as a form of income.
You must be able to show proof of your rental income, meaning that this income must be listed on your yearly income tax returns. Your lender will study your return to determine whether your rental income has been stable for the last two to three years. If it hasn't been, your lender might not accept it as qualifying income.
Are you a full-time teacher who tutors on the side? Maybe you handle IT operations for your company but also do freelance tech consulting on the side. Can you use this part-time income when qualifying for a mortgage loan?
It depends. Grabel says that most lenders will require proof that you've been earning your part-time income for at least two years. In other words, you'll need to claim this part-time income on your taxes.
"You can't apply for a loan and say you've been tutoring for three years if you've never claimed that income on your taxes," Grabel said. "We need to see that this income has existed and that it's been consistent, otherwise we won't allow it."
And that is the key for any form of alternative income: You have to prove that you've been receiving the income on a regular basis and that you will continue to receive it after you've been approved for your loan.