Annual Net Income
Your client’s annual net income is the income they have left over after paying taxes and other fees. Instead of using net income when calculating your client’s borrowing power, they will use gross income, which is your client’s income, before paying taxes.
How your client can calculate their gross income
In order for your client to calculate their net income, they need to first calculate their gross income. Most lenders will use the following information when calculating gross income:
- Base income
- Bonuses: this is irregular income. Some lenders will use bonuses if your client can provide a 2-year history, while others won’t use it at all.
- Overtime: some lenders will use all of your client’s overtime while others use only about half.
- Commission: lenders will use this form of income if it is regular and ongoing.
- Tax-free income: these include Family Tax Benefits A and B, as long as your client’s children are under age 11.
- Rental income: most lenders use 80% of rental income when calculating gross income.
How your client can calculate their net income
Once your client adds up all the income from the categories listed above, they will subtract out the taxable amount, leaving them with their net income. The taxable amount depends on the income scale they fall into and whether they have any deductions.
For instance, if your client has a gross income of $100,000, the government will withhold around $26,000. Therefore, your client’s net income will be approximately $74,000.
If your client has questions about calculating their net income or how their net income will affect their home loan, contact the experts at Mortgage Street.