How does income verification work?

The mortgage underwriting process is essential to verify income and ultimately determine whether the loan is approved or not. In addition to examining your income, the underwriter will also dive into significant events such as recently graduating from school, switching careers, or starting a new business.  

Because the amount of money is substantial, the verification process can be tedious and requires plenty of documentation to get it done.

This overview will give you an idea of what to expect during the underwriting process to better prepare for it. Have specific questions about underwriting? Contact us!  

What are the income requirements when applying for a loan?

When applying for a loan, the question is not about how much income you need to qualify but how much of your income you’ll be spending on your mortgage and other debts. There are two Debt-to-Income “DTI” ratios lenders review.  Often called the front and back ratios.  The front ratio is the percentage of your monthly income spent on housing expenses.  These include principal and interest payments on the mortgage, homeowner’s insurance, mortgage insurance, property taxes, and HOA dues.  The back ratio includes the monthly housing expenses above and all your other monthly credit liabilities like credit cards, student loans, auto loans, and personal loans.  The back ratio also includes child support, spousal maintenance, and alimony payments.

Each loan program has different maximum front and back ratios.  Contact your loan officer for all the details and which program might be best for you.


Underwriters need to determine if you have adequate income to make your monthly mortgage payments. The majority of underwriters follow Fannie Mae and Freddie Mac guidelines, but standards may vary. 

To improve the chances of approval, you need to prepare pay stubs for the last two to three months, W2 forms and tax returns for the previous two years, and bank statements to verify funds needed to close and any required reserves. They do this to check if your income stated matches the income reported. They also want to verify your employment status with your employer. 

Things may get a little tricky if your income is dependent on bonuses and commissions. Underwriters will need to see two years' worth of bonus or commission income to consider it as part of their income.  

The requirements get more challenging if you are self-employed. 2 years of income from your business is usually required, and in place of W2s, you need to prepare profit and loss sheets, balance sheets, and personal and business tax returns.

It is not unusual for the underwriter to come back with questions about your submitted documents, so don’t be alarmed. Respond quickly and submit at once to make the process faster. Underwriters will know your income, so there is no need to hide any information. Being upfront can go a long way in getting your loan approved.


* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.