In this blog, we will cover and discuss mortgage qualifying with part-time income and other income lending guidelines. One of the biggest hurdles many mortgage loan borrowers face is having a high debt-to-income ratio when qualifying for a mortgage loan. Most lenders have overlays on debt-to-income ratios. Lender overlays are lending requirements that are of higher standards than those imposed by HUD, the parent of FHA.
What Types of Income Can Be Used To Qualify Someone For a Mortgage?
- Full-time income with verification of employment
- Full-time income can be hourly income based on a 40-hour work week or a salaried income
- 1099 income can be used as qualified income based on the adjusted gross income of the borrower’s tax returns
- 1099 income is considered qualified income only if and only if the borrower has a two-year working history with said employer
- Commission income can be used as qualified income if the borrower has a two-year history earning record.
- Part-time, overtime, and bonus income can be used only if and only if the borrower has a two-year history of making such income
- Secondary employment income (if you have more than one employer) can be used if the borrower has a two-year history of earning such income.
How Do You Know If I Can Get Mortgage With Part-Time Income?
Part-time income, overtime income, bonus income, and other income can be used as qualified income but under the terms of the mortgage underwriter. First and foremost, if the part-time and/or other income is not seasoned for two years, the idea of being of use to such income is dead.
The first step in part-time income and other income to be taken into consideration is the two-year seasoning requirement. The mortgage underwriter needs to be convinced the likelihood of the non-traditional income is likely to continue for the next three years. We will cover mortgage qualifying with part-time income and other income throughout this article.
How Do Lenders Calculate Qualified Income For Mortgage?
For example, for borrowers who have a $2,000 monthly gross income, total monthly bills which includes mortgage payment cannot exceed $800 with a lender who has lender overlays capped at a 40% debt-to-income ratio. HUD Guidelines On Debt To Income ratios is 46.9% DTI front end, and 56.9% back end to get an approve/eligible per Automated Underwriting System for FHA-insured mortgage loans.
Part-time income and overtime income can be used to boost borrowers’ monthly income. Can only be used if borrowers had a two-year seasoning of part-time and/or overtime income. In this article, we will discuss and cover Mortgage Qualifying with part-time income and other income.
Mortgage Loan Denial Due To Declining Income
Part-Time Income and Overtime Income can be used to qualify for a mortgage. However, the borrower needs to have had consistent part-time and overtime income for the past two years. Declining income cannot be used and random and off on part-time, bonus, overtime, and other income cannot be used.
The mortgage underwriter has to be confident the part-time, overtime or other income is likely to continue for the next three years. A borrower with part-time and/or other income with two-plus years of seasoning can get a mortgage loan denial if the mortgage underwriter feels the income has been declining and forecasts the income will continue to decline. The mortgage underwriter can exercise the powers of underwriter discretion in making a call to deny a loan due to irregular, inconsistent, or declining income.
Mortgage Qualifying With Part-Time Income Can Be Used With 2-Year Seasoning
Having a high debt-to-income ratio can disqualify a mortgage loan borrower from getting mortgage approval. Many borrowers have part-time income and are paid in cash. Unfortunately, undocumented part-time income cannot be used in a mortgage application. Only documented part-time income with longevity can be used to calculate borrowers’ income.
Mortgage Qualifying With Part-Time Income And Other Income Likelihood Of Continuation
To be able to use the part-time income for mortgage qualification purposes, the borrower must have had a part-time income for at least two years. It is the same case with overtime income. If a borrower has had two years of consistent overtime income, we can use the overtime income as additional monthly gross income to offset the high debt-to-income ratios. In order to use part-time income, the mortgage loan borrower needs to have worked for at least two years.
Part-Time Income With Less Than 2 Years
If a borrower has worked his part-time job for less than two years, we can probably still get to use the part-time income. This only holds true if the borrower can get a letter from his or her human resources department. A letter stating that he or she will be guaranteed the same amount of hours in the next six to twelve months can often do the trick. The same applies to overtime income. If a borrower has had overtime income for less than two years, they need to get a letter from their personnel department that the overtime is likely to continue for the next six to twelve months.
Overlays on Debt To Income Ratio
Borrowers with high debt-to-income ratios and need to qualify for a mortgage, please contact us at 1-800-900-8569 or text us for a faster response. Or email us at email@example.com. We are mortgage bankers and correspondent lenders with no overlays. Most mortgage companies have debt-to-income ratio caps at 45% due to their lender overlays. However, we only go by AUS FINDINGS and minimum federal HUD and Fannie Mae mortgage lending guidelines of 46.9%/56.9% debt-to-income ratios on FHA Loans and 50% DTI on conventional loans.
This blog on mortgage qualifying with part-time income was written by Fiona McCue, Senior Mortgage Processor at Gustan Cho Associates
October 6, 2022 - 4 min read