Serving Up HomeownershipHave you ever been told that working in the service industry isn’t a “real” job? It’s not true. Serving, bartending, cooking, hosting, bouncing, whatever your role is – these are REAL jobs requiring REAL work. Why not put your hard earned money to work for you?
“Tip income” is not included as part of your regular wage. It’s an additional earning received from a guest without your employer’s influence.
Mortgage guidelines regarding tip income have changed in recent years, making it easier for tip-earning workers to get pre-qualified.
If you make tips at your job, we have some homeownership tips for you!
How do we qualify your income?
We can take the average of the last two years of claimed tips on your W-2 in addition to your hourly or salary wage.
For example: You claimed $20,000 in tips in 2021 and $22,000 in tips in 2022. We’ll take the sum of these numbers and divide by 24 months to get your average monthly tip income of $1,750.
What We Need From You
Qualifying for a mortgage with tip income doesn’t require any additional steps, but it may require some organizational skills.
- Proof of income: all borrowers, regardless of if you make tips or not, must have their income verified by their lender. Typically, you’ll need to provide all pay stubs for the most recent 30-day period and your two most recent W-2s (or 1099 if you’re not a W-2 employee).
- Make sure you’re reporting tips: we will ask for your two most recent Federal Tax Returns. It’s very important that you are properly reporting any tip income to the IRS because your tax returns will need to match up with your real earnings and bank statements.
- Document tips: track your tip earnings carefully. We will want to verify any tip income along with your hourly or salary wage. It may be helpful to deposit cash tips so that you have a track record on your bank statements. Make sure you’re noting which deposits are tips. Even if you do not make the majority of your income from tips, it’s still beneficial to keep track of extra earnings. Do you accept tips through Venmo or another app? Tips made through apps like Venmo or PayPal can be taxable. In addition, starting the 2022 tax year, anyone who receives at least $600 in payments for goods and services through Venmo, or any other payment app, can expect to receive a Form 1099-K.
- Stay where you are: lenders want to see that your income will stay consistent in the future, and one way to show this is by having a steady employer. You want to avoid switching places of employment when going through the mortgage process.
If you’re still renting, it’s time to compare your options and see how buying a home could benefit you. With rental prices skyrocketing, there’s never a better time to try your hand at buying and invest in your future.
Buying a home could offer you:
- A fixed monthly payment and low down payment options. Unlike with fixed mortgage payments, your rent payments may increase over time.
- Equity! When you purchase your own home, a portion of your monthly mortgage payment, known as the principal, may allow you to build equity in your home. The money you pay toward rent goes straight into the pockets of your landlord.
- Freedom to personalize your home and make it your own. Plus, down the road you can borrow against the equity in your home to pay for renovations, college tuitions, weddings, debt or anything else that you would like.
- Potential tax benefits, insurance deductions and more!
Towne First Mortgage is not a tax consultant. Contact your tax advisor for more details.
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