Income is an important factor that lenders assess when evaluating loan applications. Different types of income can impact your loan eligibility and ability to repay the loan. Here are some common types of income lenders consider:
Employment Income
This is income earned from a regular job or employment. Lenders typically look for a stable employment history, consistent pay stubs or income statements, and job security. Full-time, part-time, and self-employed income fall under this category.
Self-Employment Income
If you run your own business or work as a freelancer, your income will be viewed as self-employment income. Lenders may require additional documentation, such as tax returns, profit and loss statements, and bank statements, to verify your income and assess the stability of your business.
Rental Income
If you own and rent out properties, rental income is considered. Lenders typically evaluate rental income by looking at rental agreements, bank statements showing rental deposits, and tax returns for the rental property. They may consider a percentage of the rental income to ensure the property generates sufficient cash flow.
Investment Income
Income from investments such as dividends, interest, capital gains, or rental properties may be considered. Lenders may require documentation, such as tax returns and investment account statements, to verify this income. They usually assess the stability and consistency of investment income to determine its eligibility for loan approval.
Retirement Income
For individuals who are retired, income from pensions, Social Security, or annuities may be considered. Lenders require documentation, such as retirement account statements or award letters, to verify this income. They may evaluate the stability and longevity of retirement income to assess loan eligibility.
Alimony and Child Support
Lenders may consider alimony and child support payments as income, part of the borrower’s overall financial picture. Documentation, such as divorce or separation agreements and bank statements showing regular payments, may be required for verification.
It’s important to note that the acceptance and treatment of various income types may vary among lenders. When applying for a loan, be prepared to provide relevant documentation that supports your income claims. Your lender will assess the reliability and stability of your income streams to determine your ability to repay the loan. Consulting with a financial advisor or loan officer can help you understand how your specific income sources will be evaluated by lenders.
