If you are buying a home, it helps to know exactly what lenders and underwriters look for when they verify your income. I break this down so you can be prepared, avoid surprises, and make the mortgage process smooth. Below you will find how W2 hourly pay is evaluated, how overtime and bonuses are treated, what happens if you are self employed or working gigs, and the verification methods lenders use to catch inconsistencies.

How W2 hourly income is calculated

For hourly workers, lenders do not assume you work a 40-hour week automatically. We look at your check stubs — I like to see the most recent two months — to find your average hours. From that average we calculate gross monthly income like this:

1. Average weekly hours × hourly rate = weekly gross
2. Weekly gross × 52 weeks ÷ 12 months = gross monthly income

That gives us your baseline monthly income. If your average comes out to 36 hours instead of 40, that is what we use. This is why those recent check stubs matter: they show how many hours you actually work.

Overtime and bonuses: consistency matters

Overtime and bonuses can count toward qualifying income, but only if they are consistent and you have a history of receiving them. Key points:

• Overtime must be evident over a two-year period to be reliably counted. If overtime appears only during the last three months of the year, lenders will usually not include it.
• Bonuses are treated similarly. If you receive quarterly bonuses and there is a history (even if one quarter was missed), they can often be counted.
• If a bonus or overtime is sporadic or a one-off, it will not help your monthly qualifying income, though it can be used for reserves or down payment.

Self-employed and 1099/gig workers face more scrutiny

Self-employed income and 1099 gig work are treated differently than W2 pay. Lenders generally want to see a two-year history of that income, and you’ll need to have filed taxes on it. That means:

• You must report and pay taxes on your self-employed income for two years before it is considered reliable.
• Write-offs that lower your reported adjusted gross income (AGI) will reduce the income lenders can count.
• If your AGI is low because you wrote off a lot of expenses, lenders will use that lower number when calculating qualifying income.

In plain terms: if you made $50,000 from self-employment but wrote off most expenses and your AGI shows $10,000, lenders will see monthly income closer to $833 and that may not be enough to qualify. If that side work is not needed to qualify, consider keeping it separate so you can still deduct expenses. If you need that income to qualify, be careful with write-offs and plan ahead.

Taxes, write-offs, and planning for two years

Do not expect to start a new self-employed venture today and immediately use that income to qualify. The lender model assumes two years of history. My blunt advice:

• If you rely on 1099 or self-employed income to qualify, pay taxes on the income for two years and avoid excessive write-offs that artificially lower your AGI.
• If you owe the IRS, you can still buy a house, but you must enter a written payment agreement with the IRS and show proof of at least the first three payments. Lenders will include that payment plan amount in your debt-to-income calculation.

How lenders verify employment and income

Underwriters and processors use multiple verification methods. Expect us to double and triple check what you provide:

• The Work Number: Many employers use this payroll verification service. If your employer uses it, it pulls directly from payroll records and shows wages and employment status.
• Verification of Employment (VOE): If the Work Number is not available, we call HR or send an authorization to the employer for written verification. We often verify more than once — at application and again before closing — to make sure you are still employed.
• Bank deposits and pay cards: We will look at where your net pay is deposited. If you claim $1,250 weekly but only $600 deposits show up, that discrepancy will trigger additional documentation requests.
• Document validation: We pull IRS tax transcripts and compare employer-reported wages to W2s and your submitted documents to catch doctored paperwork.
• Online checks: For self-employed borrowers, we may check websites, Google listings, phone numbers, and other online presence to confirm the business is active.
• Bank account aggregation tools: Tools like Plaid (or equivalent bank linking services) can be used to view bank statements directly after authorization, helping validate deposit patterns and income flows.

Real-world red flags and what triggers extra checks

Underwriters often see the same red flags. Here are some examples that cause files to be pulled for closer scrutiny:

• Sudden large increases or decreases in income on paystubs versus tax returns
• Multiple different W2s or inconsistent reported wages across documents
• Check stubs that do not align with bank deposit amounts
• Homemade or doctored documents — we verify with the IRS and your employer
• New employment started just before closing, or quitting between approval and closing
• Being on leave or not in current pay status at the time of verification

Here is a truth I have to say bluntly: “I know it ain’t fair. I know it sucks.” These are the industry rules and underwriters follow them to make sure income is stable and likely to continue.

Common mistakes borrowers make

• Assuming overtime or recent bonuses will count without a two-year history
• Writing off too much on self-employment to lower taxable income when that income is needed to qualify
• Quitting a job after conditional approval and before final verification
• Trying to provide doctored W2s or paystubs — lenders will pull IRS transcripts and contact employers
• Not setting up an IRS payment plan properly when they owe taxes and expecting it to be ignored

Practical preparation checklist

Before you apply for a mortgage, do the following to avoid delays and denials:

1. Gather two months of recent pay stubs and the most recent W2s.
2. If you are hourly, calculate your average weekly hours from at least two months of check stubs.
3. If you regularly earn overtime or bonuses, collect a two-year history showing consistency.
4. If self-employed or 1099, plan two years ahead: file taxes and report income rather than writing everything off.
5. If you owe the IRS, enter a written payment plan and make at least the first three payments. Keep documentation of the agreement and proof of payments.
6. Keep employment stable until after closing. Avoid quitting or going on leave during the mortgage process.
7. Be honest on your application and let your lender know about nonstandard income sources early so they can advise you.

Final notes

The underwriting world assumes income that is stable, consistent, and documented. W2 pay is generally more straightforward. Self-employed and gig incomes are absolutely usable, but they require planning, history, and careful tax reporting. Lenders have many ways to verify what you say you earn, and they will check multiple times — during underwriting, before closing, and sometimes even on the day of closing.

Do your homework early. If you rely on self-employed or 1099 income, start preparing at least two years ahead. If you have questions about your specific situation, run your numbers and ask the lender what documentation they will need so you can be credit ready.

Be truthful, keep good records, and plan ahead. That is how you make sure the mortgage process is seamless.