ASPECTS OF INCOME By Anne Elliott
Conventional methods for deriving qualify- ing income work most but not all the
time. With special circumstances,
thought is involved.
Declining income doesn’t have to be a deal
breaker. The following are several rationales for loan
• Debt ratios so low that even additional decline
does not jeopardize affordability. A letter of expla-
nation addressing the potential of stabilization is
• Additional sources of income making the declining
income less relevant.
• Significant equity combined with abundant re-
serves supporting the borrower’s motivation and
ability to repay.
• A rebounding economy. At the end of an econom-
ic downtrend, businesses (unless affected by other
factors) are apt to trend upward.
• A well-qualified co-borrower, occupying or other-
• Decline so minimal it is irrelevant.
The transaction type is relevant when there is
declining income. A rate and term refinance with a
slightly lower payment and/or a longer term, particularly when the new loan term is considerably longer
than the current loan’s remaining term, evidences
desperation and may be too risky for prime financing.
A rate and term refinance with a shorter term may
offset concern with hardship. A cash-out refinance is
suspect. Loan proceeds could be targeted for prop-ping up a business, starting up a replacement business, or providing the down payment on a less costly
home. The purchase of a second home or investment
property could be a move-down or a buy and bail, depending on equity in the primary residence.