Not everyone has a 9-5 job that pays them a paycheck on a weekly or bi-weekly schedule. For some, that can lead them to believe that they won’t be able to get a mortgage, but that is not the case.
Sure, getting a mortgage is a very big deal that requires a great deal of paperwork. There are inquiries into your taxes, bank accounts and employment history. In general, lenders require at least two years of documents and work history to consider you for a loan.
But what happens when you do have a unique income situation? There are millions of people who work in jobs that do not issue steady paychecks. Waiters, self-employed people, contractors, business owners, and commission-based employees are all examples of people who make perfectly viable income who may find some difficulties verifying that income when it comes to a loan.
So what do those people do?
Self-Employed and Commission-Based Income
When lenders look at income, they usually do so over a two year period. They feel that is the best amount of time that will give them an accurate reflection of how much money you earn on an average monthly basis.
So what if you are opening a new business? Or you own a business that made a lot of money last year, but two years ago you had some struggles? What about if you make money on commissions (hello salespeople!)? If you had an off year, it could really affect the mortgage you may be able to get.
There are programs out there that will let you qualify for a loan with one year of history. Just try to make sure that the bad year isn’t the most recent one.
Multiple Job Holders
This situation is actually kind of tough for people. Namely because when lenders see someone working two jobs, they are concerned that you may quit the second job as soon as you get a mortgage. Sound nasty? Maybe, but remember, lenders are trying to make a living too and they want to protect their investments as much as possible. That’s just a fact.
If you have two jobs, you very well may need to be able to provide W2s from both jobs for two years. If you can do that, the lender will average your income for both jobs together. No problem. But if you can’t you may have to consider another option like gift funds from a relative. The way that works is if you get a big enough cash gift to put down a large down payment, you may qualify for the loan.
Take a moment to think of all the jobs out there where people depend on tips for most of their income. Not only waiters and waitresses, but beauticians, hair-stylists, hotel workers, and bartenders get most of their money from tips. If you tend to get tricky at tax time, this could be a hindrance in the home buying process. Make sure that you report all your income accurately. If you’re going to rent for the rest of your life, then do what you will, but if you want a mortgage, make sure that you report every cent. The lender will want two years of your taxes and the higher that income is, the more you’ll be likely to get a loan for your dream house.
So, in the end, it isn’t impossible for people without steady paychecks to get mortgages, but it may be a little harder. The best thing to do is plan ahead when you’re planning on buying a house. Understand that the two years before you apply for a loan are the most important years as far as your income is concerned. As much as you are able, try to make sure these two years are stable. Lenders LOVE stability.
For more information on this topic or to talk to Roger or Taryn about your options, please contact us!