Patrick's Quick Answer
Here's the key: if a portion of your household income is paid in cash, Ursula the Underwriter cannot count it toward your mortgage at all. I worked with a San Antonio buyer paid half in hourly wages and half in cash, and the fix took two documents: a letter from the employer spelling out the arrangement, plus a clean record of every cash deposit into his bank account. Lucky is what I called him when it finally closed.
Some of your income is paid in cash? Here is the real answer: as far as Ursula the Underwriter is concerned, that money does not exist. Cash shows up on no paystub, no W-2 and no bank statement. If a portion of your household income is paid in cash, she cannot accept it, period.
The buyer who was paid half and half
I worked with a buyer in the San Antonio area who was paid half in hourly wages and half in cash. The hourly half was clean: W-2 wages and paystubs. The cash half was money he lived on every month, and it bought him exactly zero dollars of qualifying income. It is a familiar setup around here: service work, construction, tips. The work is real and the money is real, but with no paper trail, a lender cannot verify a penny of it.
How we actually fixed it
That file ended up closing, but it took two specific documents. First, a letter from his employer, on company letterhead, spelling out how much of his pay came in cash and on what schedule. Second, he had to track every cash deposit into his bank account, building a record the letter could back up. When Ursula finally stamped her approval, I had one word for the buyer: lucky. He was lucky the employer would document the arrangement at all, and that he had months of deposits saved up. Plenty of cash-paid setups do not get that ending.
What you should do starting today
If part of your pay is cash and a home purchase is on your horizon, bring it up with Lawrence the Loan Officer on the first call, before pre-approval. Then start moving that cash into a traceable bank account now, every single deposit, and keep the records. The longer the paper trail before your file goes in, the better your story. Cash that never touches a bank account is cash Ursula cannot verify.
Reality Bites
Cash is untraceable, so to a lender it does not exist. That does not mean you cannot buy, it means the cash portion of your income has to be moved onto the books before underwriting starts, and that takes months, not days. Never invent a story about a big deposit either. A fake explanation is how good borrowers get denied, and that is a lot harder to undo than "here is the real documentation."
This is the kind of real-world wrinkle I walk first-time buyers through in my free live webinar, where I teach the entire roadmap from getting your income ready to getting your keys. If cash is part of your pay, this is exactly the conversation to have before you start shopping in San Antonio or the Texas Hill Country.