The news is inundated with stories of lenders making it tough for some borrowers to qualify for mortgage loans. But while that can be true, borrowers with unique circumstances shouldn’t be deterred. Many lenders work with unusual borrowers to help them secure mortgages.
Qualifying with unusual income types is mostly a question of documenting consistent monthly income.
Two (Or More) Jobs
Having a second or third job can help an applicant qualify for a mortgage. The lender will consider the income from a part-time job in addition to the borrower’s primary employment total income.
The catch is that the borrower has to show a two-year history of working all jobs simultaneously. The lender will request W2s and verifications from all employers for the previous two years, and most likely come up with a two-year average for any income from multiple jobs.
What the lender is looking for is the borrower’s capacity to sustain multiple jobs at the same time. So you can’t go out and get a second job a month before applying for a mortgage and expect that to help you. In fact, it may hurt you. A second job with no prior history as the new job will be viewed as a risk to the applicant’s primary job, which is a risk to your monthly mortgage payments.
Seasonal employment is also an acceptable source of income. Again, the borrower has to show a two-year history of consistent time on and off the job.
The classic seasonal worker example is a commercial fisherman. The legal fishing season may only be a few months, but the fisherman may make $75,000 during that time. He’s shown pay stubs that indicate a history of making around the same amount each season.
Just because he is not working at the moment of the mortgage application, he could qualify for a mortgage. Every indication is that he’ll go back to work when fishing season starts up and will be able to continue making monthly payments even during the off-seasons.
So if you’re a Santa Claus, ski resort worker, or hotel bellhop in Alaska, you might just be able to use your income to qualify as a home buyer.
It’s possible to use unemployment income to qualify for a mortgage, though there are some contingencies. Ultimately, as with other income types, mortgage lenders are looking for consistency.
Some job types have a history of hire/layoff cycles. Construction workers are really busy for months but are laid off when a project is complete, then, a month later, they are rehired, and the cycle starts again.
Similar to all income types, history is the key. Mortgage applicants who wish to use unemployment income to qualify must show that they have both worked and collected unemployment benefits in a fairly consistent manner for at least two years.
The kicker when it comes to tip income is many people don’t report it for tax purposes. When they go to apply for a mortgage, the lender can’t see the tip income on W2s or tax returns. To gain the tax benefit of tips, they forfeit the bulk of their income as far as loan qualification.
Most bartenders, hotel staff, and restaurant workers get hourly pay right around minimum wage. It’s hard to qualify for a mortgage with that.
When properly documented, tip income can be a real boost to a mortgage application. It can double the home price for which an applicant can get approved. For more reasons than one, anyone with tip income should think twice before hiding it from Uncle Sam.
Alimony & Child Support
Both alimony and child support can be used to help qualify for a mortgage loan. You’ll need to provide your mortgage lender with documentation showing that your former spouse consistently makes these payments on time.
You can qualify for a mortgage with Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI) and traditional Social Security income. You’ll simply need to demonstrate a consistent monthly income that’s large enough to cover the monthly payments for the mortgage loan that you want.
Using A Relative’s Income
Some borrowers don’t have enough income of their own to qualify for a home. In some cases, they can use a relative’s income. This is a popular feature of the FHA loan program. So far, FHA has not restricted the use of what is called “non-occupant co-borrower” income.
A non-occupant co-borrower is anyone who does not plan to live in the home being purchased but chooses to co-sign the loan with someone who does plan to live there.
For instance, if a college student buys a home near a college of choice rather than paying rent or dorm fees, a relative could co-sign the loan.
The FHA underwriter will “blend” both applicants’ incomes, credit, and assets as equal borrowers on the loan.
Dad may be a little hesitant to enter into this situation though, since he will be legally liable to repay the debt if his son decides he no longer wishes to pay. The loan will also show up on Dad’s credit report and lenders will count that debt against him if he applies for new credit.
With the right combination of borrower and co-signer, and a good dose of trust, this lender allowance can make a homeowner out of applicants who can’t go it alone.
Prepare to Prove Income To Get A Home Loan
Anyone with alternative types of monthly income should be prepared to supply more documentation than the standard salaried borrower. Ask your loan professional upfront what documentation you should start gathering.
When preparing your loan application, you can expect to supply items such as letters and verifications from past and current employers, W2s and tax returns for at least two years, and financial paperwork from relatives if using their income to qualify.
Of course, you’ll still need a good credit score, a down payment but unusual income streams won’t prevent you from being able to take out a mortgage.