Your W-2s and tax returns confirm your annual gross income while your pay stubs verify your current income level. To verify your gross income, lenders usually request your pay stubs for the prior two months and your W-2s and tax returns for the prior two years. (-) Retirement Account Contribution: $100 Monthly Gross Income: $5,000 -> figure lender uses to determine mortgage qualification Please note that this example is provided for informational purposes only and your income and deductions vary based on your federal and state tax rates, elective contributions and other factors. In this case, the lender uses $5,000 in monthly gross income instead of net income to determine if the applicant qualifies for the loan despite numerous elective contributions and deductions. The example below shows the income lenders use when you apply for a mortgage. In short, lenders typically use the highest gross income figure possible to evaluate your mortgage application. It is important to highlight that in addition to excluding retirement account, health insurance and health savings account elective contributions, lenders also look at your gross income before mandatory deductions for federal and state taxes, social security (FICA tax) and medicare. Use our MORTGAGE QUALIFICATION CALCULATORto determine the mortgage you can afford based on your gross income For example, if you are in a financial pinch, you could pause contributions to your retirement account and use that extra income to help pay your mortgage.

The reason most mortgage lenders use the pre-deduction gross income figure is because many of the pre-tax contributions you make are elective, which means that you could stop making them if you need money to pay your mortgage. For example, if your annual gross income is $50,000 but your taxable income on your W-2 is only $45,000 due to pre-tax contributions, lenders typically use the higher $50,000 gross income figure to calculate the mortgage you can afford.

Lenders use your gross income before any deductions, including pre-tax deductions such as retirement account or health insurance contributions, to determine what size mortgage you qualify for.

What is adjusted gross income on w2