Monday, February 21, 2011

Length of Employment - Hourly and Salary Income

What Matters to a Lender?

• Length of employment
• Stability of income
• Continuity of income

Length of Employment

“Typically, when a borrower has been generating income for two or more years from either part-time or full-time work with any number of employers, the lender may base its underwriting decision on the borrower’s current income.” – Fannie Mae

First Jobs and Jobs in a New Field

• Only need one month of income if the job is a first job or a job in a new field
• HOWEVER, the borrower must have recently completed specific training for the first or new job. Examples:
–Recent college degree and job in same field as degree major
–Recent training certificate for the job
• One paycheck and an offer letter is acceptable in lieu of one full month of income

Stability of Income

• Income stability, rather than employment stability, is what matters
• You do NOT need to have the same job for two years to qualify for a mortgage
• It is acceptable to change jobs often, as long as the income earned is stable (the same or increasing)

Continuity of Income

• Must be a likelihood of continued receipt of income for at least three years
• IMPORTANT: unless there is evidence that it will NOT continue for three years, the lender should conclude that the income WILL continue

Part-Time, Second-Job, and Multiple-Job Income

• Income must be uninterrupted for the previous two years
• Sometimes, 12 months is acceptable, provided there is strong evidence that the income will continue
• Must have a strong likelihood of continuation
• Income must be averaged over the previous two years

Seasonal Income

• Borrower must have worked the same job, or in the same line of seasonal work, for the previous two years
• Employer must verify that there is a reasonable expectation that the borrower will be rehired for the next season

Bonus and Overtime Income

• Bonus and overtime income must have been received for the previous two years
• Employer must confirm that the income is likely to continue
• Income must be averaged over the previous two years
• If the earnings trend is stable or increasing, then it is acceptable
• If the earnings trend is decreasing, then it is not acceptable

Periods of No Employment

• If the period between employment is less than one month, then no explanation is required
• If a few months, then an explanation is required (looking for work is an acceptable explanation)
• If greater than six months, then the borrower must be employed for six months before qualifying for a mortgage, and the work must be related to the previous employment
–Example: taking a few years off to raise children


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Want to make sure your loan closes? Call the Mortgage Experts at 303-345-3683.

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