According to standard mortgage guidelines, settlement income must continue for at least three years from the date of the loan application to be used to qualify for a mortgage. Please note that this is an industry guideline and some lenders may apply their own, stricter internal underwriting guideline and require that the settlement income continues for at least three years from the date the mortgage closes. For example, if your loan closes on December 1st, 2018, your settlement income would be required to continue until December 1st, 2021. When you apply for the mortgage, lenders request a copy of your settlement documents to confirm both the amount and duration of your settlement income.
Additionally, with some settlements, the monthly income is expected to change or decline in the future. For example, you may receive $2,500 a month for five years and then then income is reduced by 50% or is eliminated after five years. If settlement income is expected to continue at a specific level for at least three years, the lender is permitted to use that income to qualify the applicant for a mortgage even if the income is expected to change or decline after three years. Again, lenders can decide to apply their own policy and use the lower future settlement income even if the applicant receives the higher income for longer than three years so you should check with the lender to understand their approach before you apply for the mortgage.
We should highlight that just because you qualify for a certain loan amount does not mean you need to obtain a mortgage of that size. You may be more comfortable with a smaller loan amount, especially if your monthly settlement income is expected to decrease in the future, even if the lenders says you can afford a larger mortgage.
You use our Mortgage Qualification Calculator to determine what size mortgage you can afford based on your monthly gross income and debt expense
Your monthly income includes your settlement income plus any other income you receive and your debt expense includes monthly payments on credit cards as well as auto, student and personal loans. If your settlement income is expected to change in the future, you can use the calculator to determine what size mortgage you can afford at various income levels to determine the loan amount and payment you are comfortable with.
We always recommend that you contact multiple lenders to understand how they would handle your unique situation. You can review lenders in your area on the table below. We advise you to contact at least five lenders as as qualification guidelines vary, especially as it relates to monthly settlement income Plus, shopping lenders is the best way to save money on your mortgage.
You can also use our Personalized Mortgage Quote feature to receive no obligation mortgage quotes from leading lenders.