Qualifying for a home loan can be especially challenging if you don’t have a regular paycheck.
Even if you have a solid credit score, money in the bank, and low or no debt, you can still expect mortgage lenders to check on your income to be sure you can afford your loan payments. And you may face stricter eligibility requirements if you’re a seasonal employee or a freelance or gig worker.
Having an inconsistent income isn’t an insurmountable hurdle — but there are some basic guidelines homebuyers should be aware of as they prepare to apply for a mortgage.
Here, you’ll learn:
• Can you get a mortgage without a job?
• How do you apply for a mortgage if you have seasonal income?
• What sort of income documentation do you need?
• How can you improve your chances of mortgage approval?
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Is Employment Required to Qualify for a Mortgage?
Usually, you are required to show two years’ worth of employment and income on a mortgage application. Lenders use the information on a loan application to evaluate a borrower’s risk based on a number of factors, including their credit history, their assets, how much debt they can comfortably handle, and the amount and reliability of their income.
If you can prove to your lender that you can make your monthly house payment even though you don’t have a traditional employment situation, you still may be able to qualify for a mortgage. In fact, you may be able to get a mortgage without a job at all if you can prove that you have adequate financial resources.
For example, a retired couple may be eligible for a mortgage based on their Social Security and pension payments alone. And if that isn’t enough for a mortgage, income from other sources may push things ahead. For instance, they may be able to qualify if they have a retirement account they can tap, rental property income, or investments that pay dividends or interest. A divorced individual may be able to use alimony or child support payments to qualify for a home loan. And certain types of long-term disability income also may be accepted.
Applying for a Mortgage with Seasonal Income
If you’re earning an income but some or all of your work is seasonal, you should be prepared to provide extra documentation that proves your income is dependable.
For example, seasonal employees who work for the same company (or in the same field) every year should be ready to furnish two years’ worth of W-2 forms, pay stubs, tax returns, bank statements, and other financial backup. Your employer (or employers) also may have to write a letter stating you can expect to work again the next season.
Remember, the lender wants to be as certain as possible that you can manage your home mortgage loan. If you’ve been working at the seasonal job for less than two years (or if you can’t prove the work will continue), you may not be able to get past the underwriting process. In other words, your mortgage loan would not be approved.
In that case, you may have to wait until you’ve put in more time on the seasonal job, or you could consider applying with a co-borrower or cosigner to improve your chances of getting a loan.
Part-Time Income vs Seasonal Income
Some points to note about part-time vs. seasonal income:
• Income documentation requirements are generally less demanding for part-time workers than for seasonal workers.
• Part-time workers still must provide paperwork that supports the income information on their mortgage application. But if a lender can see a borrower has year-round employment and a regular paycheck — even if he or she works fewer than 40 hours a week — that consistency can help with qualifying for a mortgage.
• Even if you work full-time or overtime in a seasonal job (as a store cashier during the holidays, for example, or at a theme park during the summer), you may have a harder time proving that your income is stable.
Proof of Income Documentation
Proving income stability also can be a challenge for freelancers and gig workers who are trying to qualify for a mortgage.
Instead of pulling out pay stubs and W-2s to prove their income, as employees with more traditional jobs do, self-employed workers have to round up their 1099s and other documentation from their business (bank statements, tax returns, profit and loss statements, etc.). They need to share those as proof of income for a mortgage, along with the required information about their personal finances.
Documentation requirements can vary depending on the lender or the type of loan, but freelance and contract workers typically need to provide proof of at least two years of self-employment income to qualify for a home mortgage loan. And if that income is significantly different from one year to the next, or is going down instead of up, the lender may have questions about the borrower’s ability to keep up with mortgage payments over the long-term.
Something else to keep in mind:
• Though it may be tempting to take advantage of every tax break for your freelance business, those deductions might affect how a mortgage lender looks at your bottom line.
• If you have accepted some payments under the table to avoid taxes, you won’t be able to count that money as income on your loan application.
Gathering Your Income Documentation
Not having the proper income documentation can slow down the mortgage loan process, so it can be a good idea to gather up your paperwork well before you actually sit down to apply.
If you’re a first-time homebuyer, or you aren’t clear on what you might need as a seasonal or self-employed worker, a good lender will walk you through the list — but here are a few things you’ll likely need:
• Tax returns from the past two years. (Personal and business returns if you’re self-employed.)
• Two years’ worth of W-2s or year-end pay stubs. (If you’re self-employed, you can use your 1099s.)
• Bank statements. (Personal and business bank statements if you’re self-employed.)
• Letter verifying your employment. (If you’re a seasonal worker, your employer would state that you’re expected to be hired again. If you’re self-employed, you might provide a letter from a CPA verifying that you’ve been in business for at least two years. You also could include a client list with contact information or your company’s website.)
• Statements verifying additional assets.
• Proof of other income sources. (Alimony and child support, disability income, Social Security, etc.)
Improve Your Chances of Mortgage Approval
A stable income can be key to getting a mortgage, but lenders also will consider several other financial factors when evaluating an application. If you want to improve your chances of qualifying for a home loan — and get the lowest interest rate possible — here are a few things to focus on:
Generally, borrowers need a FICO® credit score of at least 620 to qualify for a fixed-rate conventional mortgage. But a higher score (670 to 739 is considered “good”) could make you more appealing to lenders and help you get a lower interest rate. Before you apply for a loan, it’s a good idea to check on your credit score and make sure your credit reports are accurate and up to date.
Coming up with a larger down payment could boost your chances of being approved for a loan. (The tools in SoFi’s Home Loan Help Center can help you figure out the amount you can afford.)
Debt-to-Income Ratio (DTI)
In general, mortgage lenders like to see a DTI ratio of no more than 36%. To figure out your DTI, add up your monthly bills, such as housing costs and any monthly loan or debt payments, and divide that total by your monthly gross (pre-tax) income to get your DTI percentage. If your DTI is running high, lowering or eliminating some debt before applying for a mortgage can make you look like less of a risk.
Your lender also may want you to see that you have a backup emergency fund or an asset you can liquidate easily, just in case your income falls short of expectations.
Recommended: Mortgage Pre-Approval Need to Knows
If you don’t have a traditional job with a regular paycheck, you may have to jump through a few extra hoops to qualify for a mortgage. But if you can show your lender that you have reliable and consistent income sources, good credit, and can afford your monthly payments, a home loan shouldn’t be out of reach.
How can SoFi help? SoFi’s online application makes it easy for all types of borrowers to get started. And SoFi’s mortgage loan officers can provide one-on-one assistance as you work your way through the mortgage application process, so you can know what’s expected.
Can I qualify for a mortgage using seasonal income?
If you can prove you’ve worked in a seasonal job for at least two years, the money you’ve earned, once documented as proof of income for a mortgage, may help you qualify.
Can I include tips as part of my income when qualifying for a mortgage?
If you keep good records and claim the tips you receive from customers on your income tax return, you may be able to include that money as income on your mortgage application. But if you pocket the money and don’t report it on your taxes, you can’t expect your lender to count it.
Are there any exceptions to the two-year employment requirement when applying for a mortgage as a seasonal or freelance worker?
If you change employers but remain in the same line of work from one year to the next, you may be able to get around a lender’s two-year requirement. Let’s say, for example, you’re a swimming coach. If you move from one county to another, but you’re still teaching swimming at a community pool, the fact that you changed employers may not affect your income eligibility.
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