Toll-Free 877 878 0100
How Employment History Affects Your Mortgage Application
Employment history plays a very important role in the qualification process of a mortgage application; especially in today’s economic environment.
Many employees are finding themselves with reduced work hours, declining bonuses and commissions, temporary layoffs, or inconsistent self-employment income.
It’s important to understand how your employment history can affect your loan approval.
Lenders will use unemployment income as a part of your entire income picture if unemployment is reasonable and common in your line of work. For example, if you are a landscaper and you are unemployed, lenders will consider your unemployment during the winter months as a part of your income.
If, however, you are currently unemployed and receiving unemployment insurance, you cannot qualify on unemployment income.
Reduced Work Hours
If your hours have been reduced, you will have to qualify on the lower income. The lender will require your Human Resources (HR) department to verify your average hours worked.
To calculate your new lower income figure, take your hourly rate times your new work hours times 52 weeks, then divide that number by 12 months. That is the monthly salary the lender will use.
Declining Bonuses and Commission
Many employees earn a significant percentage of their monthly income from bonuses or commission. Declining bonuses or commission can affect your qualification for a mortgage if you need that income to qualify.
Lenders will require that any income above your base salary be verified and broken down by your HR department. Lenders need to see your income history by year to date earnings (YTD) and the last two previous years.
If the bonus or the commission are declining YTD as compared to the previous two years, you can only use the declining YTD average plus your monthly base income.
Many self-employed borrowers are negatively affected by the slow economy as well. Self-employment income may be used to qualify for a mortgage with a two year history as long as your income did not drop more than 25% from one year to the next.
Some self-employed borrowers switch to W-2 positions due to the unsteady state of the economy. If you are applying for a Conventional loan, you are likely to get approved for a mortgage with a base salary and just a few months on the job. If you are applying for a Government loan, you will need a six-month history on the new job.
And again, if you are an hourly employee at your new job, your average hours worked per week will have to be verified through your HR department (See Reduced Work Hours).
Some people who have been laid off from their W-2 position try to go into business for themselves. Lenders will not use self-employment income with less than a two-year history.
Here to Help
When considering your mortgage application, Meridian Home Mortgage’s Personal Advisors are always willing to answer your questions. Please do not hesitate to call a Meridian Personal Advisor if you fall into one of the above categories.
We are here to help you with your mortgage application. We also have qualified staff members who are happy to look at the big picture of your income situation before you invest in an appraisal.