Why do lenders want to see your 2 years W2 and 1 month worth of paystub? Simple. They want these documents to support length at current employment and consistently in income earned from one year to another (stability of income). If you are in the process of applying for a home loan and underwriters require you to explain huge fluctuation in income earned for the past years, you can either (1) write a detail letter of explanation or (2) provide an explanation directly from the employer – which ususally works better by the way. Here are some of the common reasons why there’s a huge fluctuation in income earned:
Unpaid family leave: Example – maternity leave, family member is sick and borrower chooses not to work and care for a family member.
Unpaid medical leave: Job injury, borrower is on long-term sickness and could not get back to work for a period of time, unexpected surgery.
Reduce in Overtime: Employer cuts down overtime available for workers due to bad economy (especially for seasonal workers).
Reduce in bonus payout: Company isn’t doing well and does not payout as much as they used to.
These are some of the common reasons why there’s a decline in income earned. If these situations apply to you, be prepared to provide an additional information to support income used for qualifying. The most important thing is to convince the lender that the situation which causes declining in income earned no longer applies to you and that you are now working full-time earning the qualifying income you want to use.