This ARTICLE On Importance Of Job Stability When Buying A House With Mortgage Was PUBLISHED On November 29th, 2019
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
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
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, two years of 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
- It depends on the underwriter and underwriter discretion
- If a borrower goes from 1099 to W2 wage earner, then an offer letter of employment and 30 days of paycheck stubs is required
- If a mortgage borrower goes from W2 to 1099 wage earner, then two years of 1099 income is required
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.
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. Experienced producing real estate agents and mortgage loan originators normally can get a job quickly. 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.