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How Lenders View Tip Income  How Lenders View Tip Income

How Lenders View Tip Income

Written By: David Reed
Tuesday, November 30, 2021

When tips play a big part in someones take-home pay, it can be used to help qualify for a mortgage. The kicker is that many dont report all of the tip income or simply lose track of the amount. Tips are issued to the recipient directly either in cash or added onto the credit slip. Either way, it must be accounted for.nbsp;

Its the recipients job to not only keep track of the daily amounts as well as report the income when filing income tax returns. And here is where things can sometimes get a little off track. Most such jobs pay a minimum wage and its the tip income that really matters. But when it comes time to qualify for a home loan, that tip income must be accounted for.nbsp; Accounting for tips means depositing the funds into a bank account on a regular basis. It also means keeping a personal, written record of tip income.nbsp;

When someone gets paid from their employer, its common for income to be paid out on the 1st and 15th. The bank account statements will then show these deposits from the employer using direct pay. But what the employer wont show is how much tip income was distributed. In fact, the employer might have a general idea but there isnt any way for the employer to get an exact number on the amount of tips. Its important to also deposit tips in a regular manner. Someone might deposit last weeks tip income on a Monday, for example. Weekly, consistent deposits that are verified by bank statements and even deposit slips may be counted.

However, as we recently mentioned, all income must have a history and tip income is no different. Income in general must be documented to having been received for at least the last two years. This provides the lender with enough confidence the income will continue well into the future, typically for at least three years. Verifying a consistent, two year history helps lenders make this determination. Tip income must also be shown being received for at least two years. The income reported to the IRS is the amount of tip income lenders will use when qualifying. Thats the final verification lenders need in order to use tip income when qualifying for a mortgage and probably the most important. If this income doesnt show up on your tax returns, thats going to be a problem. Even if you keep solid personal records.

If youre planning on buying a home in the future and your tips play an important part, make sure we speak together about how to document this important piece of your financial profile before you get too much further. In essence, its just like any other income as it >

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