During the current health crisis, many people are facing temporary leave from work. If you are one of the millions whose jobs have been impacted by the coronavirus, you can still get a top-quality mortgage even if you are going through a temporary leave.
From FHA loans to conventional loans, here are some details on how you can get a mortgage while on temporary leave.
You Can Get a Mortgage Loan While on Temporary Leave: Here’s How
For an FHA loan, your lender will essentially need to confirm that your income is “Effective Income.” To do that, he or she will verify that you intend to return to work and have the right to return to work. Also, the lender will have to confirm that you still qualify for the mortgage when reductions in income are taken into account.
If you expect to return to work before the first payment is due, your pre-furlough income can be used. However, if you expect to return to work after the payment is due your current income plus available cash reserves may be used to help in qualification. Basically, the reserves, if available, can be used as an income supplement to help you reach the income total you had before being furloughed.
To calculate how reserves are added to your monthly income, the lender will take the total amount in question and divide by the number of months between the first payment and your return to work. Suppose there will be four months between your the first payment and your return to work, but you have $10,000 in reserves. In this case, you would divide the cash total ($10,000) by the number of months (4) to get $2,500. ($10,000 / 4 = $2,500.)
To use this loan option, you will need the following documents…
- A written statement confirming your intention to return to work, including the expected date
- Statement from employer confirming your eligibility to return to work
- Confirmation of assets that will be used to supplement your income
To use a VA loan when you have been furloughed, the lender will basically need to determine that your credit history is strong and your expected future income is enough to justify lending a certain amount. VA loans will also need to establish first-lien status, although this stipulation won’t effect most borrowers.
The lender will start the process by verifying your income. To complete this step, the lender will go through the VA’s Verification of Employment process. As a borrower, you really don’t need to know the details, just understand that for these loans, there is a specific process that the lender needs to complete.
There are certain details related to the current health crisis that you should be aware of. Most significant, if your mortgage application has been effected by COVID-19, the period of furlough should not be considered a break in employment or income if you have already returned to work or expect to return by a specific date. If this is the case, a statement regarding the nature of your furlough should be provided by the employer.
During the application, lenders will take a proactive measure to document and upload evidence of their analysis, especially on borrowers who are at the edge of approval, which will help if the VA needs additional information in the future.
First of all, to qualify for a loan supported by Fannie Mae, you will need to meet the basic requirements of income and credit. You will then need a written document that states your intention to return to work as soon as possible. The lender will also need documentation of your expected return, either from you or through your employer. In addition to this information, the lender will need a verbal verification from the employer. The lender will then go through the process of verifying your income, which can include a variety of documents.
If you will return to work before the first payment is due, the lender will be able to use your regular income when qualifying the loan. However, if you will not return to work, the lender will have to use the lesser of two numbers:
- Your temporary-leave income (if it exists)
- The regular employment income
If using the temporary-leave income, the lender can use cash reserves to bolster your qualifying income.
According to Freddie Mac, temporary leave from an employer may encompass a large variety of situations, including family and medical issues, short-term disability, maternity, and other temporary leaves that could come with or without pay. Usually short in duration, the period of time can be impacted by various factors, and can be influenced by law, employer policy, insurance policies, and benefit details.
As with other loans, if you are returning to work before the first payment is due, your previous income can be used for qualification. However, if the return is expected after the first due date, your gross monthly income amount received during the leave may be used. If your income has been reduced or completely eliminated (temporarily, of course), you may use the monthly amount and bolster it with liquid assets. (You can, in fact, use liquid assets even if the leave income is zero.) However, the total qualifying income must not exceed the borrower’s pre-leave gross monthly income amount.
If you are on temporary leave and want to use a loan supported by Freddie Mac, you will need to bring a few different documents. This will include pre-leave income and verification of previous employment, as well as a written statement confirming your intention to return to work; this letter should include the expected date of return.
You will need to bring a document from the employer confirming this information. This can include different forms, including an FMLA document or an employer-approved leave request.
If you are returning after the first payment is due, you will also need verification of income received during the leave, as well as information on all available assets that can be used to supplement your qualifying income.
You Can Still Get a Mortgage on Temporary Leave
No matter what your current employment status, if you need a mortgage for a comfortable, safe, affordable home, contact our staff today. With numerous resources and a dedication to service, we will do our best to help you qualify for a top-quality loan for a world-class home!