How do I prove my true income when I work for tips? I average 40k a year but I only show 10k on paper.
What you are describing was the old stated income type program. This program was very popular over the last decade for the self employed and those who do not correctly report their income to the government and who do not pay their correct taxes as a result.
These were dubbed "liar loans" by the media and recently have been under the government spotlight as one of the things they are abolishing as a result of the mortgage meltdown.
Although many of my collegues and myself think there needs to be some adjustments made for the self employed, as of now the only way to get a loan is by declaring ALL of your tips, paying your taxes on them like a good patriot and qualifing for a loan based on your actual income.
In order to use the income for mortgage purposes, you would have to have claimed it on your tax returns. Theoretically, you claimed all yout tip income on your returns just as you claim your W2 income - this is required by the IRS. While I understand that many people do not claim their full cash earnings, or even fully inderstand that they are supposed to do so, there is no way to "have your cake and eat it too" - that is, avoid taxation, but still use this income for other purposes, such as mortgage qualification.
Talk to your tax preparer. You may be able to correct or amend your past tax filings to reflect your true, corrected income - and pay the taxes. You would then have a record of those earnings in your tax returns. If you dont wish to do that, you must begin claiming all the income in the next year of filing, and build up a 2 year history of having done so, in order to use the income to qualify for a mortgage.
Since there are no more stated income loans you are pretty much out of the mortgage market. There might be a "hard money" lender out there who would be willing to lend to you if you could document the income by showing bank statements of consistent deposits of the tips. If you keep the money in cash it will be extremely difficult to prove that you get them. Any lender that will do this type of loan is going to charge a much higher interest rate because of the elevated risk potential.