What is required of income documentation for a “full doc” loan

Last night, someone contacted me with excellent questions regarding buying a home priced over 1,000,000.   His questions are excellent and worthy of answering on a post to share with other readers.   Since the answers may be a bit detailed, I’ll break this up into separate posts.

“I was wondering if you can provide me with some information regarding loans.  We are looking to buy a house in the next 6-12 months with a price range of 1.1 million to 1.3 million.  We plan to put 20% down on a 30 year fixed mortgage and our credit score is between 760-790. 

1)  What type and duration of income documentation is needed for a full doc loan in the current lending environment?
2)  What is the debt to income ratio that most lenders are using for loans of this size?
3)  What is the typical interest rate differential for a loan of this size compared to the jumbo rates that you quote on Rain City Guide?”

The short answer is 2 years of annual income documentation and 30 days of paystubs.  Income requirements for a conforming and non-conforming are essentially the same and depend on what the automated underwriting system’s (AUS) response is.  Underwriters are looking for trends in income and if they spot what they determine to be a downward trend, they will make an issue of it. 

Here are some basic guidelines that you can rely on which vary depending on how one is paid and if they are self employed.  

Annual Salary

Underwriters like to see two years in the same line of work.  College courses in your line of work can be included in your two year history.   Be prepared to back it up with transcripts which may or may not be required. 

If you’re paid an annual salary, plan on providing 1-2 years of your W2s and paystubs documenting 30 days of income showing your year to date earnings.   Often times, just one W2 is required; it all depends on the AUS findings.

Bonuses, overtime and commissions are typically averaged over the past two years.  If you are relying on this type of income to qualify, you may need to provide your last two years complete tax returns.   A Verification of Employment may also be sent to the employer with a request to provide your income information.   If tax returns are provided, the lender may require you to sign a 4506 or 4506T.  If a borrower has not received bonuses, overtime or commission for the past 24 months; it may not be used for qualifying for a mortgage.

Hourly Employees

When you are paid hourly and the hours vary, your hours and income are averaged for the past two years.  Be prepared to provide your last two years W2s and paystubs covering 30 days of income. 


Self Employed

Two years complete (all schedules) business and personal tax returns are required for a full doc loan.    This is the “short answer” and I promise I’ll do a follow up post what may be needed to document self employed income.   A key factor is that you must be able to document that you have been self employed for two years and this income is averaged.   Again, underwriters are looking for trends.  If your most recent year shows a less income than the previous, this will be questioned.

Other types of acceptable income may include:

  • Military
  • Income from rental properites (not for renting rooms in your primary residence)
  • Retirement
  • Alimony
  • Child Support
  • Interest income
  • Part time employment/second jobs
  • Disability/Social Security

As long as the income can be documented for the past two years and is likely to continue, it’s likely that it can be used for qualifying purposes. 

During these times in the mortgage industry, guidelines are constantly changing and underwriters may lean towards the more cautious side.  If you’re planning on obtaining a mortgage for a new home purchase or refinance, the earlier you meet with a Mortgage Professional to review your options, the better off you may be…especially if you’re in the non-conforming market (loan amounts over $417,000).

Watch for Part 2 where I answer Questions 2 and 3.





  1. […] won't be an issue. The lender will probably require at least one pay stub (possibly more to document your income) from your new employer as well as a verification of income. If you have an employment letter or […]

  2. […] paid borrower,lenders want to see the last two years complete tax returns and will basically average the last two years net income assuming their income is steady or […]

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