Welcome back to Pro Processing! Your go-to Q&A series for common loan scenario questions, presented by Kudos Financial.
Today, we have a real head-scratcher of a question: What if a borrower can't qualify based on their regular income, but they've just been added to a trust?
Can trust income be considered when applying for a mortgage?
Well, I'm here to tell you that trust income can indeed be a game changer for mortgage qualification, as long as you have the necessary paperwork in order.
The key to leveraging trust income for mortgage qualification lies in providing your processor with a trustee statement or trust agreement. This document is crucial as it will reveal important details about the distribution amount, the frequency of distributions, and the duration of the trust.
However, simply having a trustee statement or trust agreement isn't enough. To convince lenders that the trust income is reliable and will continue for the foreseeable future, it's essential that the trust income continues for at least three years from the date of the mortgage application. This requirement ensures that the borrower's financial stability is not solely dependent on a short-term influx of funds.
But wait, there's more.
It's not just about having the paperwork in order; borrowers also need to provide tangible evidence of the trust income in the form of a current bank statement. This bank statement should clearly show that the distributions are being received by the borrower and deposited into their account. In essence, it proves that the borrower isn't just talking the talk but is also walking the walk with those trust distributions.
To summarize, if you find yourself in a situation where your regular income isn't sufficient to qualify for a mortgage, being added to a trust can be a viable solution. However, it's essential to ensure that you have the necessary documentation in place. This includes a trustee statement or trust agreement that provides details about the distribution plan. Additionally, the trust income must continue for at least three years from the mortgage application date, and you must provide a current bank statement to substantiate the trust distributions.
Now that you understand the basic requirements for leveraging trust income for a mortgage, let's dive deeper into why lenders consider trust income and how it impacts the qualification process.
Lenders consider trust income because it is a consistent and reliable source of funds that is separate from the borrower's regular income.
Unlike employment income that may fluctuate or be subject to layoffs, trust income is typically set up to provide consistent distributions. This stability makes it an attractive asset for borrowers who may not meet traditional income requirements but have access to trust funds.
Trust income can come from various types of trusts, such as revocable trusts, irrevocable trusts, or even family trusts. The most important aspect is that the income received from the trust is consistent and can be verified. Lenders need to see a track record of regular distributions and assurance that the trust will continue to provide funds for the foreseeable future.
When evaluating trust income, lenders will also consider the type of trust and its purpose.
For example, a trust set up solely for mortgage qualification purposes may raise red flags for lenders. However, if the trust has a legitimate purpose and is intended to provide ongoing financial support, it will be more likely to be considered in the qualification process.
It's worth noting that even with a trust in place, lenders will still assess your overall financial situation. They will review your credit history, assets, and any existing debts. While trust income can boost your chances of qualifying for a mortgage, it's not a guarantee. Lenders need to ensure that you have the financial stability and ability to repay the loan.
In conclusion, trust income can be a game changer when it comes to mortgage qualification. If you find yourself in a situation where your regular income is insufficient, being added to a trust can provide an alternative solution. Remember to gather the necessary paperwork, including a trustee statement or trust agreement, and ensure that the trust income will continue for at least three years from the mortgage application date. Providing a current bank statement as proof of distributions is also crucial to substantiate your trust income.
However, it's important to remember that trust income is just one aspect of the mortgage qualification process. Lenders will assess your overall financial situation, credit history, and ability to repay the loan. Trust income can certainly enhance your chances of approval, but it's not a standalone guarantee.
I hope this information has clarified the role of trust income in mortgage qualification. As always, thank you for tuning in to Pro Processing.