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Misc Income increase in 2020 - what can be used towards mortgage?


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I've had some recent success increasing my misc income by margin swing trading in 2020. The last two years my misc side income was about $4,000 but this year its quite a bit more. I just want to use a fraction of this income on my mortgage app, but will that be possible? I intend to pay taxes on the gains of course and can provide documentation on the income.

Edited by Headwaters44
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8 hours ago, hegemony said:

why would you want to under-report income when trying to qualify for a mortgage? I'm trying to understand the logic here; prima facie it makes no sense.

No good reason other than reporting enough misc income on the mortgage app to offset my full-time job DTI Calc (car loan, student loans) just a little to bump me into the price range I’m interested in. But I can include all of my side misc income if that’s easier, I’m just unsure if you can count misc income same year, before it’s reported on an IRS form ?

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Miscellaneous income, that can't be documented as reliably expected again next year, won't be accepted by most underwriters.  If you have a track record of producing a reliable stream of investment income over a number of years (more than just 2), it's possible that you could submit sufficient documentation to persuade an underwriter to factor that income flow, at least to an extent.

 

However, as cv suggests, a one time investment gain (absent an established profit history) will be treated as a "windfall" and ignored.

 

Frankly, it's more likely that you might make a case with an underwriter to loosen your DTI ratio threshold.  While a cap of 33% is recommended and 36% is the typical threshold permitted by lenders, lenders have discretion under rules to extend to as much as 43% (and in exceptional cases, to as much as 50%, or even 55% in the case of a FHA backed loan).

 

Such DTI extensions require strong credit (but not exceptional) and evidence that the applicant can be relied upon for such a higher payment.  I'm not sure of all the ins or outs, but prior evidence of servicing debt at that high DTI or a strong documented past savings rate might be sufficient.  (I'm familiar with this because our lender, DCU, was able to stretch our ratio to 50% to accommodate an existing house which had not been sold; because of new employment a substantial bonus target could not be accepted as income for the mortgage)

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