I received many phone calls from buyers asking whether they can obtain a loan. So recently I had a conversation about lending with one of my preferred lenders. Eventhough some I already knew, some were an eye opener.
How Long Does a Borrower Need to Be on the Job?
Well.... It depends. The standard answer is that a W2, hourly or salaried buyer must have 30 days of paystubs with a minimum of 2 year consistent employment history in the same field previously with no job gap. When the "standard" answer is not the case, it depends on the loan product (i.e., FHA or Freddie or Fannie or VA, etc), if the buyer is commissioned or bonused, if they work a full 40 hours, how long a job gap, etc, etc, etc. Sometimes mortgage approval on income is like one of those charts that have a 100 different directions to go depending if the last answer is yes or no (again a big reason to have the buyer be pre-underwritten upfront and use an experienced Loan Officer!!).
What If the Buyer Recently Graduated From College?
Typically, lenders can use college as part or all of the "2 year employment history" depending if it can be determined that the education obtained can be tied into the requirements of the new employment. Again, that is the "standard" answer but when not the case, we have to look at the loan product, etc, etc (see above).
What If the Buyer Recently Changed Jobs Within Their Field?
Again, the standard answer is that a W2, hourly or salaried buyer must have 30 days of paystubs with a minimum of 2 year consistent employment history in the same field previously with no job gap. When the "standard" answer is not the case, it depends on the loan product (i.e., FHA or Freddie or Fannie or VA, etc), if the buyer is commissioned or bonused, if they work a full 40 hours, how long a job gap, etc, etc, etc.
What If the Buyer Recently Changed Jobs Outside Their Field?
This one can be a little tougher. Can we tie in the skills needed from the previously field to the new one or previous jobs held by the borrower. Can their training or education that has occurred to make the change be tied in and how long did they do the training, etc, etc... and then each mortgage type has their own guidelines... again, why an experienced and knowledgeable Loan Officer is always needed.
What are the Additional Rules for Self-Employed Borrowers?
The standard answer is the self-employed borrower must have two years of Tax Returns and a minimum of 24 months with the company/business open. Lenders will then take the income shown on the Tax Returns after all deductions to calculate the DTI. Depending on when they filed their last Tax Return (and depending on the loan product) will depend on whether we would also need a Year To Date (YTD) P&L, Balance Sheet, etc. There are a few programs outside this standard answer but this is one of the factors that has tighten the most since the 2007-2008 crash.
Information provided by Linda Davidson at Service First Mortgage with permission to blog.
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