Does One-Time Lawsuit Settlement Affect Underwriting?

Dear MortgageMaster,

I have received a settlement for a personal injury which is not subject to tax reporting or taxation. It will make my personal income look elevated in comparison to next year. Is this a situation that could be explained by letter to a mortgage broker and other creditors so that my ability to seek credit next year won’t be negatively impacted?

Thanks, Susan

Hi Susan,

I hope you have healed from your ordeal. You said that the settlement "was not subject to tax reporting or taxation". How will it make your personal income look elevated? Perhaps it is reported, but not taxed? I do not know. Let's assume that you did claim the income (regardless of its taxability), a simple letter may be required. This income is like a one-time capital gain; lender's will not count it. Capital gains, however, can be counted if they are consistently earned over a two year period (some lender's may request three years of taxes as proof). Thus, dividends, real estate gains, etc. MAY be counted, if they qualify. A one-time settlement will not effect you, one way or another insofar as income qualifications are concerned. You can use this money and source it as your down payment.

MortgageMaster