Recently graduate student looking to purchase a home. How are income and assets actually calculated?

Recently graduate student looking to purchase a home. How are income and assets actually calculated?
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A few questions, thank you for any help:

  1. I was a graduate student until May 2013. If I apply for a mortgage, it seems like they look at my last two paystubs. Do my last year’s tax returns matter?

  2. I get ~50% of my income via a year-end bonus. When calculating the 4-4.5x leverage on my income, I assume it’s by my last two paystubs, annualized, without the bonus?

  3. I understand that at closing, they would want you to have at least 20% downpayment + closing costs + reserves for 6-12 months debt service. For the last item, is it 6-12 or can it be shorter? Is it okay if some of my funds are in foreign bank accounts (ie can show them my statements?)

  4. If I get some contributions from my parents as a ‘loan’, to be returned once my bonus hits in 6 months, how do they know it’s a loan besides being in an account for at least 2 months?

Many thanks and apologies for the many questions.


This calculation varies so I suggest you call your bank or mortgage broker and see how they calculate the ratios as they will place or initiate your loan.


I'm not sure if I can answer all of your questions, but here are a few insights:

The best scenario when buying a home involves putting 20% down. With 20% down the borrower can receive gifts up to 100% of the down payment with no private mortgage insurance (PMI). PMI can add several hundred dollars to the monthly payment. However, many first time homebuyers are cash constrained. Some may qualify for an FHA loan which requires only 3.5% down. Many end up putting 10% down which requires PMI and only 5% of the down payment can be a gift. Closing costs are approximately 2% of the purchase price and include title insurance, escrow fees, and appraisal fees. There may be a local transfer tax due on the purchase - these can be substantial.  Lenders require 2-12 months of cash reserves (which will cover mortgage, property tax, insurance and other debt payments). The cash reserves can be in retirement accounts but lenders only count 65% of retirement accounts unless you're over age 59 1/2.

Note: All gifts must be documented and paper-trailed. 

Income Rule of thumb: Lenders require that housing costs (PITI) plus all other monthly debt payments be no more than 43% of gross income. 


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