How Mortgage Lenders and Underwriters Verify Income

The 2024 First-Time Home Buyer Handbook

Reader question: “I was told that mortgage lenders and underwriters will verify my income as part of the loan approval process. How do mortgage companies verify a borrower’s income? And what is the primary reason for doing so?”

Whether or not you get approved for a home loan will largely depend on your ability to repay that loan. To determine this, mortgage lenders will review all aspects of your financial situation, especially your income and employment status.

Loan processors and underwriters use a variety of documents to verify your income. These include bank statements, paycheck stubs, W-2 forms and tax returns. Collectively, these documents show the mortgage lender how much money you earn today, and how much you’ve earned over the past couple of years. This is a primary checkpoint during the mortgage underwriting and approval process.

How and Why Mortgage Lenders Verify a Borrower’s Income

A borrower’s ability to repay is a key part of the mortgage underwriting and approval process. It’s so important, in fact, that the federal government has outlined procedures for verifying and documenting a person’s ability to repay a loan.

It only makes sense for a mortgage lender to verify a borrower’s income, because that income is what allows the borrower to repay the loan. Without some form of income, a person can’t make his or her monthly payments.

Verifying income is one of the central parts of the mortgage underwriting process. Specifically, the mortgage company and its underwriter want to know that you earn enough money to make your mortgage payment each month — ideally while having some money left over. This is also how lenders determine how much they’re willing to lend you.

Debt-to-Income Ratio

Mortgage lenders verify borrower income and then compare it to the amount of recurring debt. This is known as the debt to income ratio. Along with credit scores, debt ratios are one of the most important factors that can determine whether or not you get approved for a loan.

If your recurring debts (such as credit cards, car payment, personal loans, etc.) are using up too much of your monthly income, you might have trouble qualifying for a loan. Mortgage lenders and underwriters prefer to see a total debt-to-income ratio no higher than 43%, though some will go as high as 50% for otherwise well-qualified borrowers. These numbers are not set in stone — they just represent industry trends.

Getting back to the question at hand: How do mortgage companies and underwriters verify income? And why do they do it?

Procedures and Standards Vary, So Shop Around

They verify income by looking at paycheck stubs showing year-to-date earnings, bank statements, and tax documents. They use these documents to verify your income to make sure that you have the ability to repay your loan. Plain and simple.

It’s also important to realize that different mortgage companies have different procedures for verifying income, as well as different standards and requirements for the debt-to-income ratio. So it’s possible for one lender to reject a loan application due to insufficient income and/or excessive debt, while another approves that same borrower.

This is why it’s important to speak to more than one mortgage company, especially if you get turned down for income or debt-related issues.

Brandon Cornett

Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author