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

Want to watch our video of this tip? Check it out on our web site by clicking here.

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

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