Using Employment Offers for Mortgage Qualification
Say you just received an offer for employment, giving you a significant income boost. With this new income, you’ll be able to finally afford the outstanding home you have always wanted.
You’re ready to start shopping for homes now. But there’s a problem: you won’t start the new job, and receive the higher income, for two months.
Does this mean you have to wait two month to use your future income for mortgage approval? Not necessarily.
Thanks to rules from Fannie Mae, you can actually get approved for a loan using future income from employment offers. You’ll have to meet specific requirements, but this is a great option if you want to start shopping for a home much sooner!
Getting Qualified with Employment Offers
Option 1: Prepare the Loan for Delivery When You Start
The first option is to have the loan delivered after you start employment. This is generally a simpler process, but you can do most of the preparation before you start the new job, which makes the later process faster. If you are going to have the loan delivered once you start the job, the lender will need a copy of your offer of employment. This document should have a statement that includes the anticipated income so the lender knows roughly how much you will make in a given month or year.
This essentially prepares the loan for delivery, with everything lined up so once you start, you can get the loan almost immediately. Before the loan is delivered, however, the lender will need a pay-stub from the borrower that includes information to support the income that is being used to qualify. This pay-stub will need to be retained in the mortgage file so the lender can access the information if needed.
Many borrowers and lenders prefer this option, as it allows them to prepare for loan delivery while waiting for the start of the job. Essentially, instead of doing nothing until you start, this option allows you to complete many of the basic requirements before the job, saving time and allowing you to get a loan faster.
Option 2: Delivery of Loan Before Starting the Job
The second option is delivery of the loan before you start the new job. If you need to secure the mortgage loan soon, you do have the option of getting the money you need for a home purchase before the job has started, but you will need to meet many requirements and provide a wide range of information.
First of all, this option is limited, so not everyone can take advantage of getting the loan before starting a job. To be eligible, the loan must meet specific transactions. It must be a purchase transaction for a principle residence (no second homes or investment properties) and it must be a one-unit property (no multi-unit facilities or duplexes). Also, your employment cannot come from a family member or anyone who has a legitimate interest in the transaction, which can include real estate agencies, builders, developers, and more. Finally, you will have to qualify using only a fixed-based income; if you need to use varying income, such as commission or ranging self-employment income, you may not be able to qualify before starting the job.
If you meet all the above requirements, you can start to move towards securing the loan before starting the job. The lender will need to obtain and review your offer for employment. When they have this document, they will look for specific information, including clear identification of both you and the employer; it will need to be signed by the employer and you will have to provide information that shows your official acceptance of future employment.
The lender will also need to review your documents for other information. He or she will need to check that the document clearly lays out the terms of employment, including the specific position, the type of employment, and the rate of your pay. They will also need to verify the start of employment, so make sure this information is included in the document. If any of this information is not included, be sure to bring other papers and documents that will provide this information.
To secure the loan before you start employment, it cannot be a contingent employment offer. If there are conditions of employment, the lender will need to confirm that all the conditions of employment have been satisfied before the loan is given. This verification can either be verbal or written documentation, and once all contingencies are satisfied, the loan can be delivered.
When you start will also be a factor. The date of employment must be within 90 days of the date when the loan is delivered.
In addition to other factors, the lender will need to verify one of the following:
Financial reserves: You will need to have sufficient reserves in savings to cover the principle, interest, taxes, insurance, and other fees and costs associated with homeownership. This can even include unique, non-typical fees, such as HOA dues. The lender will have to verify that you have enough cash, without your income, to cover half a year of owning the property.
Financial reserves and current income: The lender can also verify that you have sufficient reserves and current income to cover the number of months between the deliver of the loan and employment plus one. If you will start employment in three months, the lender can get you approved if they verify that you have reserves and income to cover four months of homeownership. Current income can take many forms, but it refers to the income that you currently earn; from your current job, for example. Current income may or may not be used for qualifying purposes, and it can be used instead of or in addition to financial reserves.
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