Income evaluation and home buying

Income evaluation and home buying

I've had a couple of experiences recently that have created situations that could easily be avoided. I, like most loan originators and real estate agents, love smooth transactions. We want everyone to walk away happy after closing.

A few months ago I was working with someone who decided he was going to quit his job right before he closed on his home mortgage. His theory was that the lender had seen his income documentation and had approved his loan on that basis and had no need to verify he actually had a job when he closed on the loan. Hint: Lenders always verify you still have a job before they close on a mortgage loan. 

More recently I have a gentleman who decided he did not need to work his normal 40 hour work week. His employer has slower times of the  year and he can opt to work less hours. He can also opt to work his full work week. Between the time he applied for a pre qualification where he had been working his full work week and the next month when he actually purchased a home he cut back his hours.  This reduced his year to date income to where he no longer qualified without reserves. Hint: Lenders look at the year to date income, not just the hourly rate to evaluate income when buying a home. Any reduction in income needs to be explained and documented. If there is a legit reason for the reduced income such as time off for surgery that can be explained and doesn't have the same impact simply not working has. 

Bottom Line:  When buying a home the lender must evaluate and verify the accuracy of income and it can cause a change in how you qualify for a purchase. If you are contemplating buying a home work all the hours you are scheduled to work and more if possible. Having too much income is better than not enough every day.