Freddie Mac Part-Time Income Mortgage Guidelines

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This ARTICLE On Freddie Mac Part-Time Income Mortgage Guidelines Was PUBLISHED On January 8th, 2019

Freddie Mac Part-Time Income Mortgage Guidelines

 

The year 2020 has already come with some big changes for the mortgage industry.

  • Recently FREDDIE MAC has made a major announcement regarding income calculations
  • In this blog, we will go over the new income guideline
  • We will cover when it will go into effect
  • We will also cover how the guideline is different from the current rule
  • We will show you how to apply for a conventional mortgage with Gustan Cho Associates

In this article, we will cover and discuss Freddie Mac Part-Time Income Mortgage Guidelines.

Freddie Mac Part-Time Income And Irregular Income Guidelines

When it comes to evaluating income, the major agencies set the standards.

  • Freddie Mac has recently changed its guidelines with an updated BULLETIN
  • Freddie Mac separates base wages into two categories
  • They focus on base “non-fluctuating” and “fluctuating” hourly employment
  • Base “non-fluctuating” simply means a salaried employee
  • “Fluctuating” employment earnings can include commission, bonus, overtime, and tip income
  • Freddie Mac has required a two-year history in the workforce before able to qualify for a mortgage for a long time, this is nothing new
  • There are instances where you can qualify for less than two years such as being a full-time college student and entering the workforce as a full-time employee
  • You can qualify for a mortgage because they consider your full-time college the same as working a full-time job, creating at least a two-year history

A change in this guideline is for “fluctuating” hourly employment earnings.

Fluctuating Earnings

The importance of earning variables

With this new change, a borrower must be employed with “fluctuating” hourly employment earnings for a full 12 months before qualifying for a mortgage (even if a full-time student before starting this job).

  • This rule is only for “fluctuating” earnings
  • The new rule also requires a full six-month job history to be considered “non-fluctuating” hourly income earners
  • Meaning the lender must document a six-month work history with the same number of hours with the same employer to be considered “non-fluctuating earnings
  • Freddie Mac has stated that “fluctuating” hourly employment earnings are considered to be income based on an hourly rate of pay for the number of hours fluctuate each pay period
  • The new income calculation requirements for fluctuating employment income types such as hourly, overtime, bonus, commission, and tips must be based on whether the income trend is consistent, increasing, or decreasing
  • That being said, Freddie Mac has added requirements when income fluctuation between the previous year and current year-to-date exceeds 10%

This analysis will show a high degree of volatility or any regular pattern requiring longer periods on the job to count that as qualifying income.

Importance Of Freddie Mac Part-Time Income Guideline Changes For 2020

Why is this guideline change important?

After reading the paragraph above, there is more than likely some confusion. Freddie Mac has changed their guidelines to eliminate confusion and create a standard for qualifying income when it comes to “fluctuating” income sources. The old guideline would allow a borrower to use a recent raise as a qualifying income.

Case Scenario

What is the case scenario?

Let’s take a case scenario to explain:

Example:  if you are an hourly employee receiving $15 an hour for 40 hours a week and you recently received a $2 an hour raise, The mortgage company would allow qualifying income to be based off $17 an hour for 40 hours a week. Of course, you would need a written verification and a pay stub to match these numbers.

  • $17 * 40 hours per week = $680 per week or $2,946.66 per month

Under the new guideline, you would be required to work a 40-hour workweek with your $17 an hour raise for a full six months before that income can be used as qualifying income. Before that six-month marker, your income would be calculated of $15 / hour.

  • $15 * 40 hours per week = $600 per week or $2,600 per month

As you can see there is a difference of $346.66 in qualifying income which is substantial. Freddie Mac has encouraged all lenders to start the new practice as soon as possible, this becomes a guideline on April 2nd, 2020. At this time, it is unclear if Fannie Mae, FHA, and VA plan to follow these changes.

Getting Started In Getting Qualified For A Mortgage

Applying for a conventional mortgage with Gustan Cho Associates is very easy. Depending on your qualifications, a conventional mortgage may be the best option for you. To apply for a conventional mortgage, simply call Mike Gracz on 630-659-7644 or you may email mgracz@gustancho.com. You and Mike will discuss your mortgage qualifications and figure out which program is best for you. After your one on one mortgage consultation, you will be paired with a licensed loan officer in your state. Your loan officer will send an application link and you will send in the following documentation:

  • Last 60 Days Bank Statements – to source down payment
  • Last 30 Days Pay Stubs
  • Last Two Years W2’S
  • Last Two Years Tax Returns – not needed for W2 only employees
  • Driver’s License or Government Issued Photo ID

Your income and asset documentation will be reviewed by your loan officer. This will let us know exactly what you qualify for. You will then be sent a PRE-APPROVAL LETTER or a financial plan stating what needs to be accomplished to qualify for a conventional loan. Either way, you will have written documentation showing you qualify or in easy to follow the financial plan of attack to get you and your family into a house as soon as possible.

Gustan Cho Associates Mortgage Group specializes in all mortgage products including Freddie Mac conventional mortgages. Please remember, we offer these mortgages without any LENDER OVERLAYS. Many of our clients have already been turned down by their current lender and are looking for other options. There is less flexibility when it comes to conventional mortgages compared to FHA. Please click here for more information on FHA MORTGAGES. We are available seven days a week to answer your mortgage related questions. For more information and to stay up to date with mortgage guidelines, please subscribe to our YouTube CHANNEL.

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