Importance Of Job Stability When Buying A House With Mortgage
This Article Is About Importance Of Job Stability When Buying A House With Mortgage
Income is the most important factor when qualifying for a mortgage.
- You can have the highest credit scores in the world but without documented income, you will not qualify for a mortgage
- However, you can have credit scores down to 500 FICO but have stable documented income and qualify for a mortgage
- A home purchase is most people’s biggest investment in their lifetime
- However, the majority of home buyers do not have $200,000 plus to cough up on a home purchase
- Most homebuyers need a mortgage
- To qualify for a mortgage, lenders look at stable documented income
- The importance of job stability is the most important factor when buying a home and qualifying for a mortgage
In this article, we will cover and discuss the Importance Of Job Stability When Buying A House With Mortgage.
The Importance Of Job Stability And Qualified Income When Applying For A Mortgage
The Importance Of Job Stability is hands down the most important factor by lenders when underwriting a mortgage borrower.
- The Importance Of Job Stability determines the steady stream of documented income
- The steady stream of documented income means the borrower has the ability to repay their mortgage
- The number one reason for homeowners defaulting and going into foreclosure is due to the disruption of their monthly income
- Gaps in employment is understandable and does not deter someone from qualify for a mortgage
- Borrowers can have gaps in employment in the past two years and qualify for a mortgage
- However, if you have gaps in employment for six or more months, you need to be in your new job for at least six months to qualify for a mortgage and 30 days of paycheck stubs
- Lenders want to make sure that your new employment will be stable
- There is no seasoning on your new job if you have gaps of employment for less than six months
- You do need 30 days of paycheck stubs on your new job before you can get a clear to close
- Lenders will ask your employer about the likelihood for your employment to continue for three or more years
This is primarily due to loss of job and/or going out of business by self-employed borrowers.
Job Stability Evaluation By Lenders Versus Borrowers
Lenders want to see mortgage borrowers have the ability to repay their new housing payment.
- The best way to analyze layered risk when underwriting borrowers is to look at the past payment history and income history
- This is why lenders want to know the past two years of employment history
- Lenders also want to know the probability of the borrowers’ income for the next three years
- This is why when they do a verification of employment
- One of the key questions asked how likely is the probability for the borrower’s income and employment to continue for the next three years
- Nobody has a crystal ball and can predict the future
- However, the past is a good indication of the future
- Those who have longevity in employment in the same field are considered strong borrowers and viewed favorably by lender
The importance of job stability is not just important for lenders but homebuyers should really analyze just how stable their jobs are. One of the biggest reasons why mortgages default and go into foreclosure is due to loss of employment. If your current employment seems unstable, I really recommend that you hold off on buying a home.
Mortgage Guidelines On Income And Employment
Only qualified income can be counted by mortgage underwriters when calculating borrower’s debt to income ratios. Cash income does not count as qualified income. All loan programs have similar income and employment guidelines.
Here are the general income and employment mortgage guidelines.
- Borrowers with variable income, mortgage underwriters will average the past two years of income
- With self-employed borrowers and/or 1099 wage earners, two years of seasoning working as self-employed and/or 1099 wage earners is required
- Two years of federal income tax returns are required
- If the borrower is both W-2 and self-employed and owns more than 25% of the company, then both the corporate and individual income tax returns are required
- Lenders frown upon declining income
- Declining income may disqualify borrowers from qualifying for a mortgage
- Mortgage underwriters have a lot of power and underwriter discretion when it comes to irregular and/or declining income
- It depends on the mortgage underwriter and
- The mortgage underwriter can deny borrowers with irregular and/or declining income based upon underwriter discretion
- If a borrower goes from 1099 to W2 wage earner, then there is no seasoning period on the new W2 income job
- An offer letter of employment is required
- The income offer on the employment offer letter will be used by the mortgage underwriter when calculating qualified income
- 30 days of paycheck stubs is required prior to a clear to close
- If a mortgage borrower goes from W2 to 1099 wage earner, there is a two year seasoning requirement as a 1099 wage earner
- Lenders want to see income stability wage earner as a 1099 and/or self-employed wage earner
- Lenders view newly employed 1099 wage earners as having more risk with regards to income stability versus W2 wage earners
- Two years of income tax returns is required
- Mortgage underwriters will average the past 24 months of the 1099 wage earners adjusted gross income based on their income taxes
- That average will be the monthly borrower’s monthly qualified income
Bank statement loans for self-employed borrowers do not require income tax returns. We can just go off bank statement deposits. 12 months bank statement deposits are averaged to derive monthly income. Withdrawals does not matter.
Evaluating Your Job Stability
A lender will verify employment and qualified income. However, borrowers should do their own evaluation as well. As yourself how stable is your job? Is there any chance of your company laying you off? What happens if your company lays you off? Is your industry hiring people with your skills? Today, many fields such as in the technology sector, employees are in demand. Other industries may not be as hot. Government jobs normally have a long hiring process. Police officers and firefighters normally have to wait six months to two or more years to get hired. Police officers always had one of the most stable jobs in the job market. However, due the radical left and the new ideology of Democrats in the nation, many blue states are being forced to defund the police. High crime cities like Los Angeles, Chicago, New York are laying off police officers despite the growing crime rate. Experienced producing real estate agents and mortgage loan originators with a book of business normally can get a job quickly. Many high producing loan officers do not have to worry about job stability. Many are being constantly recruited by major mortgage bankers and being offered hundreds of thousands of dollars in sign on bonus. Technology is expanding where many jobs are being replaced with automation. Smaller companies are getting acquired by larger companies and corporations. All of the above factors should be considered before pulling the trigger on a long term commitment like a home purchase. Borrowers should also evaluate their job stability. How stable is your job? Consider the worst case scenario and run over a what if case scenario. What if I lose my current job. How easily can I get a new job? How stable or strong is the particular industry you are in. You should not get paranoid but do consider the worst case scenario. You will want to have at least six months in reserves for a rainy day. One of the things you need to consider is how much house can I afford. You do not want to much house that will affect your lifestyle. Lenders will go with how much home can you qualify and not how much home you can afford.
Contact Us At Gustan Cho Associates To Start The Qualification And Pre-Approval Mortgage Process
If you have any questions on the content of this article and/or other mortgage-related topics or need to qualify for a mortgage with a mortgage company with no lender overlays on government and conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] Over 75% of our borrowers are folks who could not qualify for a mortgage at other lenders due to their lender overlays. Gustan Cho Associates has a national reputation of being a one-stop mortgage broker shop. This is because we have over 50 non-QM and alternative wholesale lending partners. Any mortgage loan program for owner-occupant homes, second homes, investment properties that is on the market, we have it. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.