Qualifying For a Mortgage With Investment Income?
"I’m unemployed but I have substantial investment income. Can I qualify for a mortgage with investment income, or must I have a job?"
In principle, investment income is just as good as income from a job, but it is more difficult to document. Unlike income from a job, there are no third parties to verify the information.
Lenders thus rely heavily on income tax returns for recent years, just as they do in qualifying the self-employed. They assume that any errors will be in the direction of understating rather than overstating income. To verify that you have given them your real returns, however, they require that you authorize them to obtain copies directly from the IRS. They may also ask for an update since the most recent tax return.
Ordinarily, the only investment income that is usable in qualifying for a mortgage is interest and dividends, and these may be discounted, depending on the source. Realized capital gains are viewed as too volatile to rely on. Funds obtained from liquidation of assets don’t count either because it is assumed they will run out.
Before the financial crisis, borrowers dependent on investment income often preferred to pay a price premium for an alternative form of documentation where they were only required to state their income, not document it. This practice was encouraged by loan officers and mortgage brokers who did not have the knowledge or the patience to handle complicated cases. But this option disappeared with the crisis.