Anngelli Abenes The Mortgage Expert,
Publish On: May 20, 2024
This guide explores the updated Freddie Mac part-time income mortgage guidelines for 2024. The new year has introduced significant changes in the mortgage industry. Freddie Mac has recently made a major announcement regarding its income calculation rules.
This blog will outline the new guidelines, their effective date, and how they differ from previous rules. Additionally, we will explain how to apply for a conventional mortgage with Gustan Cho Associates, focusing on Freddie Mac’s part-time income guidelines for conventional loans.
Freddie Mac Part-Time Income and Irregular Income Guidelines
Major agencies like Freddie Mac set the standards for evaluating income. Recently, Freddie Mac updated its guidelines, specifically addressing Freddie Mac Part-Time Income. They have now separated base wages into two categories: “non-fluctuating” and “fluctuating” hourly employment.
Non-fluctuating refers to salaried employees, while “fluctuating” includes earnings from commissions, bonuses, overtime, and tips.
Historically, Freddie Mac required a two-year history in the workforce to qualify for a mortgage. However, exceptions exist, such as for full-time college students who enter the workforce as full-time employees. Freddie Mac considers full-time college education equivalent to full-time employment, establishing a two-year history. The recent guideline changes specifically affect those with “fluctuating” hourly employment earnings, including part-time income, requiring a detailed assessment of their income stability. Speak With Our Loan Officer for Mortgage Loans
Freddie Mac Part-Time Fluctuating Earnings
With the new Freddie Mac guidelines, a borrower must have been employed with “fluctuating” hourly earnings for at least 12 months to qualify for a mortgage, even if they were a full-time student before starting this job. This rule specifically applies to fluctuating earnings. For “non-fluctuating” hourly income, the borrower must have a documented six-month job history with consistent hours and the same employer to be considered as non-fluctuating earnings.
Freddie Mac has defined “fluctuating” hourly earnings as income based on an hourly rate where the number of hours varies each pay period.
The new Freddie Mac Part-Time Income requirements for calculating fluctuating income, including hourly, overtime, bonus, commission, and tips, are now based on whether the income trend is consistent, increasing, or decreasing. Additionally, Freddie Mac requires further analysis when the income fluctuation between the previous year and the current year-to-date exceeds 10%. This analysis helps identify significant volatility or patterns, necessitating a longer employment period to qualify the income.
What is Considered Fluctuating Income?
Fluctuating income, also known as variable income, refers to earnings that are not consistent and can vary significantly from one period to the next. This type of income is common among individuals who work in industries or roles where their earnings are tied to performance, seasonal demand, commissions, tips, or freelance work. Here are some key aspects of fluctuating income:
- Seasonal Employment: Workers in agriculture, tourism, and retail often experience varying income levels depending on the time of year. For example, retail employees might earn more during holiday seasons due to increased hours and overtime.
- Commission-Based Roles: Sales professionals often have a base salary supplemented by commissions, which can vary greatly depending on their sales performance. Real estate agents and car salespeople typically experience this type of income fluctuation.
- Freelancers and Contractors: Individuals who work on a project basis or freelance in fields such as writing, graphic design, or consulting may have inconsistent income depending on the number and size of projects they secure.
- Gig Economy Workers: Drivers for ride-sharing services, delivery workers, and other gig economy participants often see income fluctuations based on demand, hours worked, and tips.
- Performance-Based Pay: Some jobs offer bonuses or incentives based on meeting certain performance metrics, which can cause income to vary monthly.
- Seasonal Bonuses: Certain industries offer bonuses during specific times of the year, such as end-of-year bonuses, which can cause spikes in income.
Lenders scrutinize fluctuating income more closely when assessing mortgage applications or other credit requests. They might need a more extensive earnings record and extra documentation to verify that the borrower has a steady and satisfactory income to fulfill their financial responsibilities.
Importance of Freddie Mac Part-Time Income Guideline Changes For 2024
The recent changes to Freddie Mac’s Part-Time Income guidelines are crucial because they aim to eliminate confusion and establish a clear standard for qualifying fluctuating income sources. Previously, borrowers could use a recent raise as qualifying income under the old guidelines.
The updated Freddie Mac Part-Time Income guidelines now ensure a more structured assessment of income stability and consistency, providing a more accurate evaluation of a borrower’s ability to meet mortgage obligations. This change is designed to help lenders and borrowers by creating a more predictable and reliable standard for income qualification. Click here to know more about Freddie Mac Part-time
What is the DTI requirement for Freddie Mac?
For 2024, Freddie Mac has set general guidelines for the debt-to-income (DTI) ratio that borrowers should aim to meet. Typically, the maximum DTI ratio for most conforming loans is 45%. However, in certain circumstances, such as for manually underwritten loans, it can go up to 50%.
The DTI requirements are slightly different for specific programs like Home Possible. If the loan is approved through Freddie Mac’s automated underwriting system, the DTI ratio should be 43% or less. If the loan is manually underwritten, the maximum DTI ratio can be up to 45% .
It’s important to note that individual lenders may have stricter requirements, so you should check with your lender for the specific criteria applicable to your situation.
Case Scenario of Freddie Mac Part-Time Income Guideline Changes
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 recently received a $2 an hour raise, The mortgage company would allow qualifying income to be based on $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 must work a 40-hour workweek with your $ 17-an-hour raise for six months before that income can be used as qualifying income. Before that six-month marker, your income would be calculated at $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 immediately. This became a guideline on April 2nd, 2020. 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 your best option. To apply for a conventional mortgage, call Us at (800) 900-8569, or you may email alex@gustancho.com.
We will discuss your mortgage qualifications and determine which program suits you best. 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 loan officer will review your income and asset documentation. 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. Get Qualify for a mortgage with Gustan Cho Associates Team
What is the Freddie Mac Minimum Loan Amount?
Freddie Mac does not specify a minimum loan amount for its conforming loans. However, it does set maximum loan limits that vary by the number of units in the property and its location. The national conforming loan limit for a single-family home in 2024 is $766,550. This limit can be increased to as much as $1,149,825 in high-cost areas.
Suppose you are seeking a loan amount lower than the conforming loan limits. In that case, Freddie Mac’s guidelines allow such loans as long as they meet other qualifying criteria. Lenders might stipulate minimum loan amounts, so you should verify their policies with each lender.
Lender With No Overlays on Freddie Mac Part-Time Income Guidelines
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 lenders 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. The team at Gustan Cho Associates is available seven days a week to answer your mortgage-related questions. For more information and to stay updated with mortgage guidelines, please subscribe to our YouTube CHANNEL.
FAQs: Freddie Mac Part-Time Income Mortgage Guidelines
- What are the new Freddie Mac guidelines for part-time and fluctuating income? Freddie Mac has revised its guidelines for calculating part-time and fluctuating income for mortgage qualification. The updates stipulate that borrowers must have a minimum of 12 months of fluctuating hourly employment earnings, including overtime, bonuses, commissions, and tips, to qualify for a mortgage. For non-fluctuating hourly income, borrowers must have a six-month work history, maintaining the same number of hours with the same employer.
- When do these new guidelines take effect? The new guidelines became effective on April 2, 2020. Freddie Mac has encouraged all lenders to start implementing these practices immediately.
- How do the new guidelines differ from the previous rules? Previously, Freddie Mac required a two-year work history for most borrowers. Under the new rules, fluctuating income needs a 12-month history. In contrast, non-fluctuating hourly income requires a six-month history with consistent hours from the same employer. This change aims to provide a clearer standard for qualifying fluctuating income.
- What is considered fluctuating income? Fluctuating income refers to inconsistent earnings that can vary significantly from one period to the next. This variability can arise from several sources, including seasonal employment, roles based on commissions, freelance and contract work, jobs within the gig economy, performance-based pay, and seasonal bonuses.
- Why is the guideline change important? The updated guidelines help eliminate confusion and create a standard for qualifying income, especially for those with fluctuating income sources. This standardization is crucial for accurately assessing borrowers’ ability to meet mortgage payments.
- What are the DTI requirements for Freddie Mac in 2024? The maximum debt-to-income (DTI) ratio for most conforming loans is 45%. In some cases, such as manually underwritten loans, the DTI can go up to 50%. Specific programs like Home Possible have slightly different DTI requirements: 43% or less for automated underwriting and up to 45% for manual underwriting.
- What is the Freddie Mac minimum loan amount? Freddie Mac does not specify a minimum loan amount for its conforming loans. However, it sets maximum loan limits that vary by the number of units in the property and location. The national conforming loan limit for a single-family home in 2024 is $766,550, and in high-cost areas, it can be raised to $1,149,825.
- How can I apply for a conventional mortgage with Gustan Cho Associates? To apply for a conventional mortgage with Gustan Cho Associates, call 800-900-8569 or email alex@gustancho.com. After a consultation to determine the best program for you, a licensed loan officer will guide you through the application process. Required documents include recent bank statements, pay stubs, W2s, and tax returns.
This blog about Freddie Mac Part-Time Income Mortgage Guidelines was updated on May 20th, 2024.
