Qualifying For Mortgage With Irregular Income

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This BLOG On Qualifying For Mortgage With Irregular Income Was UPDATED And PUBLISHED On December 31st, 2019

How Qualifying For Mortgage With Irregular Income

Income qualification for mortgage loans is one of the most important factors in getting a residential mortgage loan approval.

  • There are federal mortgage lending rules and guidelines when it comes to income qualification for mortgage
  • There are lender’s income qualification for mortgage due to the lender’s own overlays
  • Overlays are guidelines that are added on top of the minimum federal lending guidelines by individual lenders
  • For example, declining W-2 income can be used under federal lending income qualification 
  • However, a particular lender might have their own overlay where declining income cannot be used as income
  • We will discuss this topic in more detail later on this blog
  • Borrowers who are a 1099 wage earner will need two years of tax returns and two years of 1099 in order to qualify for a residential mortgage
  • All of the deductions will be deducted from gross income and adjusted income will be used in income qualification for mortgage purposes

In this article, we will cover and discuss qualifying for a mortgage with irregular income in the past two-years.

Other Types Of Income

What are Other Types Of Income

All cash income cannot be used to qualify for income nor any bonus income, overtime income, and part time income that has not been seasoned for two years.

  • In order for you to be able to use bonus income, overtime income, or part time income, borrowers must have had a consistent two year history of receiving those income
  • The employer needs to state that bonus income, overtime income, or part time income is likely to continue for the next 3 years
  • If the bonus income, overtime income, or part time income is rising year after year, the lender normally averages the past two years of bonus income, overtime income, or part time income to derive to monthly gross income from these sources
  • If bonus income, overtime income, or part-time income has been decreasing, then the most current year of bonus income, overtime income, or part time income is used to qualify income for mortgage
  • If most recent YTD bonus income, overtime income, or part time income is significantly less than the previous year’s bonus income, overtime income, or part time income reflected on W-2s, then the lender can decide not to give credit for these other income sources
  • This depends on your mortgage underwriter
  • This concept applies for W-2 income in general

Inconsistent W-2 Income For Income Qualification For Mortgage

What is Inconsistent W-2 Income For Income Qualification For Mortgage

Most lenders want to see a two year employment work history from borrowers in the same job and same field with a consistent income history in the past two years.

  • However, many times that is not the case but that does not mean borrower does not qualify for a mortgage due to irregular income
  • Borrowers can be a 1099 wage earner and get a new job as a W-2 and qualify for a residential mortgage loan as long as they can provide the following:
    • offer letter of employment
    • 30 days paycheck stubs
    • verification of employment by the employer
    • VOE needs to state new employment is likely to continue for next three years
    • new monthly gross income will be used for income qualification for mortgage

Irregular Income In Past 2 Years

What is Irregular Income In Past 2 Years

However, what happens if you have had irregular work hours in the past two years due to irregular hours?

  • On cases like these, past two year’s W-2 income will be averaged if the most current year income is greater than the prior year W-2 income
  • If most current year is lower than the prior year, the lower year W-2 income will most likely be used and averaged with YTD  W-2 wages
  • If YTD W-2 income is significantly lower than prior year W-2 wages and you are showing a declining in income, then the mortgage underwriter will most likely just go off YTD W-2 wages average in calculating income qualification for mortgage
  • Some lenders will have their own overlays where they will not use any of the income wages if they see consistent declining income

Qualifying For Mortgage With Irregular Income With Prior Part Time Income To Full Time Income

How Qualifying For Mortgage With Irregular Income With Prior Part Time Income To Full Time Income

If you have been a part time W-2 employee or a probationary employee but just got promoted to a full time employee or permanent employee with a dramatic increase in income, then your current new income will be used in income qualification for mortgage.

  • For example, lets take a case scenario:
    • Borrowers has been working in your job for the past two years as a part time employee
    • Making $10.00 per hour
    • Recently got promoted to a full time employee and are now making $15.00 per hour
    • The $15.00 per hour will be used for income qualification for mortgage
    • This will be the case as long as borrower can get a verification of employment from employer
    • Verification of Employment need to state the fact that borrower is a full time employee and full time employment status will continue for next three years
    • A 30 day paycheck stub will be required prior to closing on your mortgage loan.

Qualifying For Mortgage With Irregular Income And Gaps In Employment

How Qualifying Qualifying For Mortgage With Irregular Income And Gaps In Employment

Qualifying For Mortgage With Irregular Income and gaps in employment is allowed.

Federal income guidelines for income qualification for mortgage only require two year employment history.

  • Gaps in employment is allowed
  • Homebuyers unemployed or had employment gap for six months or less, than 30 days of paycheck stubs are required from new job
  • Borrowers have been unemployed for 6 or more months, six months of seasoning in new job is required
  • For example, say borrower just got a new job but have been unemployed for the past two years
  • If this is the case, then two years of employment history prior to being out of work period is required
  • Borrowers need to be on new job for at least six months in order to qualify for mortgage 
  • On the flip side, if borrower were unemployed for 5 months and 3 weeks and just got a new job, they will qualify for mortgage
  • They can close on mortgage as long as borrower can provide 30 days of paycheck stubs from new job
  • Borrowers employer needs to respond to verification of employment verifying that borrower is employed full time
  • Indication of employment status is likely to continue for next three years

Recent College Graduates

Who are Recent College Graduates

Home Buyers who recently have graduated from a technical school or are a college graduate and just got first job and have no prior employment history can qualify for mortgage.

  • They can qualify for mortgage without providing two years prior employment history
  • The time as a full time student is equivalent to work history
  • All borrowers need to provide the mortgage underwriter is school transcripts

Home Buyers who need to qualify for mortgage with a national lender with no mortgage overlays can contact us at Gustan Cho Associates at 262-716-8151 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

This BLOG On Qualifying For Mortgage With Irregular Income was updated on December 31st, 2019

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