Do you think you’re financially ready to buy a house? For many, the answer to this question usually comes down to whether or not they’ve saved enough for a down payment. Unfortunately, while a down payment is a very important component of the homebuying process, it is not the only factor to consider. In fact, prospective homebuyers need to take into consideration how much money they’re actually making.
Keep in mind that lenders not only consider your income, but also your assets when determining your mortgage qualifications. Your monthly income will provide lenders with a better understanding of how much you can afford for a monthly mortgage payment. Other sources of mortgage eligible income including child support payments, alimony, disability payments, and retirement benefits.
How Is Your Employment Income Determined?
There are a number of documents that are needed in order to verify your employment income. Typically, they’ll include:
- 2 Most Recent Paycheck Stubs
- Last 2 Years of W-2 and/or 1099 Forms
- Last 2 Years of Federal Tax Returns
- A Verification of Employment (VOE)
These documents allow a lender to determine the stability and consistency of your employment income.
How Do You Get Paid?
The structure of your payment can affect how lenders assess your employment income. For instance, a W-2 is considered to have the greatest stability. Other pay structures such as commissions, overtime pay, self-employment, bonuses, or seasonal employment are regarded as being less stable.
Less stable pay structures do not necessarily mean that you will be disqualified from receiving a mortgage. Often they simply require that a lender take a more conservative approach when trying to assess your future income. For example, in the case of a borrower with variable employment income, a lender may need to take the average income for the last two years in order to account for increases or decreases between the years.
Have You Changed Jobs in the Last Two Years?
In case you have changed jobs in the last two years, your lender will require that you submit additional documentation. This can include a letter explaining the why you changed jobs, a letter from your employer that verifies your position, and/or an employment contract that explains your compensation. As long as you are able to provide such paperwork, your mortgage application will not be negatively impacted. This is particularly true if you are a salaried employee that is moving up within the same industry.
Things can get a little more complicated if you are not a salaried employee and your change in employment has also resulted in a less predictable pay structure. Again, this does not mean that you will be ineligible for a loan, but rather it will likely require that you provide additional documentation.
Have You Been Unemployed in the Last 2 Years?
Large gaps between jobs can be concerning to lender. Given mortgage industry requirements, you’ll need to provide an explanation for any gaps that exceed 30 days. These gaps will need to be evaluated on case by case basis, but typically lenders will be looking to assess whether or not your income will remain steady in the next coming years.
What Does This All Mean for You?
Every borrower’s circumstances are different. While there can be a number of potential roadblocks on your way to securing a mortgage, don’t let factors such as a variable income, employment gaps, or recent job changes discourage you from qualifying for a home loan. For many, all that these factors simply require that you provide additional documentation.
At CitiSky Home Loans, we understand that not all borrowers fit into a particular criterion. Therefore, we provide a wide array of loan programs to accommodate all types of employment situations.
To find out if you qualify for a loan, schedule a call with us TODAY by calling 818-797-5555 or completing our online application.