How do lender evaluate W-2 from last 2 years?

Asked by Nguyen, San Jose, CA Wed May 6, 2009

For the last 2 years, our W-2 are significantly different (got promoted). Will lender use the average of the 2 years or only the latest one?

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Julie Donato…, , Sherman Oaks, CA
Wed May 6, 2009
The Fannie Mae guideline which most lenders adhere to is this, salaried employees who have recently received a raise, (verified by the paystub) can use the new amount. Often times the lender will require a verification of employment which is a fairly simple form that can be completed by your employer. Keep in mind if the raise is in the form of bonuses or overtime that portion would be averaged over two years.
1 vote
Dustin Mcali…, , 66215
Mon May 18, 2009
If you are doing a standard conventional loan and have good credit odds are you will only have to supply a pay stub only, if you are a salaried worker.
0 votes
Erica Glessi…, Agent, San Jose, CA
Wed May 6, 2009
In my experience, your loan approval will be based on several factors. Credit rating, solidity of employment, current salary, honesty (if they feel you are being straight with them) plus the percentage of down payment.

The W2s became very important when "stated income" was used without paycheck stubs. If your new pay stubs reflect your new salary level, and especially if you have good credit and a good down payment, you should be OK with w2s that reflect a previous salary level.

I had a funny experience when we bought our home. My stock had gone up (doubled) in a short time period. Our lender asked "please explain" and I said "Intel doubled so my stock value doubled."

The W2s are used to provide historical information. Lenders typically would like to see a pattern of stability. Now, if you own your own company or you are self-employed or contract, then your W2s are more important.

However, you don't always want to borrow "the maximum" allowed. I recommend you look at how much you would like your payments to be and include property tax and home insurance in your annual calculations. Then look at the home you want to purchase, and see if you cannot make a sound decision on amount of loan you wish prior to getting a loan for the maximum your new salary warrants.

Good luck!

0 votes
Bill Mccord, Agent, San Jose, CA
Wed May 6, 2009
If your current paystub shows a higher number the lender will use that. You may be asked to write a Letter of Explanation (LOE) stating when the raise was given and for how much.
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