For a mortgage, a stable income is essential. The lender wants to know that the borrower will be able repay a mortgage. They prefer to see two years of steady work with an income which is stable or increasing.
According to Scott Lindner of TD Bank’s national sales director, “the more consistent you are in your work and job history, the better.”
It doesn’t necessarily mean that a job gap or a change in employment will cause an application to be rejected. What you need to know if you have a work history that is not typical.
Career or Job Change
It is not necessary to have stayed in your job or career for at least two years in order to qualify for a home loan.
Lindner stated that it is not important for an applicant to have the exact same job, or follow a similar career path. What is most important is to provide proof of a consistent income throughout the transition. ”
If your income is stable or increasing, changing jobs prior to applying for a home loan shouldn’t harm your chances.
A change in pay type, like a move recently from salaried to commission-only, or a self-employed position, could make it harder for you to qualify. For a lender to be able to calculate self-employed income, overtime or commission, they will usually want to look at a two-year period of this type of pay to determine a fair average. This is according to Channing Moore of Bayou Mortgage, an owner in Lake Charles.
A change of job during the application for a mortgage could also cause complications. Call your lender immediately if this happens.
Moore says that if you are a traditional borrower you will be able to produce an offer letter or a paystub (from your new job) and may still qualify. You’ll be required to provide 30 consecutive paystubs for a government-backed mortgage.
Employment gap
Your mortgage application should reflect no gaps in employment over the past two years. Life can still be bumpy. You may have been laid off, returned to school, taken parental leave, or had to care for a sick relative.
The lender might ask you for documentation and an explanation, but it’s not a deal breaker if the gap is up to 6 months.
Lindner says that the best way to deal with this issue during your mortgage application is to be honest and upfront.
How about gaps longer than six-months? You may still qualify, even though lenders will be more cautious. Moore explains that you will need to have been employed at least for the last six months in order to qualify for loans from the Federal Housing Administration or the U.S. Department of Veterans Affairs. You’ll have to work for the past 30 days in order to qualify for a conventional mortgage.
A new job after school
You can qualify for a home loan if you have just begun working after finishing your education. Moore believes that education can be considered as a work history.
The requirements vary depending on the loan program. Lindner says that your chances of being successful will increase if you have a job related to your education.
You just finished medical school. Some lenders like TD Bank offer medical professionals mortgage programs to physicians, dental residents, and medical students. These programs require low down payments, do not require private mortgage coverage and have higher debt to income ratios for those who are medical students.
Self-employment
As long as your self-employment can be proven to have a steady history, you won’t face any problems getting a loan. Lindner says that lenders will usually ask for two years’ worth of tax returns from your business, as well as a year-to date profit and loss statement and business bank statements.
He added that self-employed professionals could increase their chances of getting a mortgage if they keep an eye on the credit score and monitor their debt to income ratio. They should also prepare their documents for submission with lenders.
Retirement
Lenders consider retired applicants’ income sources, such as Social Security, pensions and retirement, instead of employment. Retirement accounts can be used to qualify for retirement loans.
Lindner explained that asset dissipation could require further verification, analysis, and tax consequences. You should also consult a professional mortgage lender to better understand your situation. ”
Compare lenders
Compare at least three lenders, regardless of your employment history, to get the best rate, fee and service. If you are unsure whether or not your most recent job is up to par, contact a mortgage professional to explore your options.
Moore says that when researching the process of buying a home, people tend to focus on credit and a down payment. But at the end, it’s your income that is most crucial in the qualification process.