Can you buy a house or get an unemployment mortgage?

0


Can I get an unemployment mortgage?

Bad news first. If you have recently been made redundant (due to the pandemic or for any other reason), you cannot count unemployment benefits as income for a home loan application.

But don’t just give up on your home buying plans.

It’s possible to buy a home or refinance very soon after returning to work – or even before starting a new job if you have a solid letter of offer.

If you keep your finances in order while you’re unemployed, that brief spell without work shouldn’t stop you from buying a home or refinancing once you’re back on your feet.

Check your mortgage eligibility. Start here (August 6, 2021)


In this article (Skip to …)


Unemployment income and mortgages

If you are currently receiving unemployment benefits, your lender likely won’t be able to use your unemployment earnings to qualify you for a home loan.

The reason? It depends on how the lenders calculate and verify income.

The basic mortgage standard is this: Lenders are required to document at least two years of verifiable income from a stable source.

Your lender should also determine that the source of income is likely to continue into the future, typically for at least three years.

In order to document the past 24 months, home buyers typically need to provide several documents:

  • Payslips
  • W2 forms for the last two years
  • If you are self-employed, income tax returns for the past two years
  • Bank statements

Someone who has just been unemployed may have a stable work history. And they might have the savings for a down payment.

But a lender will not be able to verify their to come up Income.

In fact, the maximum time allowed by most states for a person to qualify for unemployment benefits is 26 weeks at a time. It’s six months, not three years.

For these reasons, unemployment income can be used for daily expenses. But it cannot be taken into account when qualifying for a new mortgage.

Buying a house after being unemployed

Now here’s the good news. If you are currently unemployed, you probably will not need to establish a New two-year work history after return to work.

In fact, you may not have to wait at all to apply for or re-apply for a mortgage.

Whether or not your loan application is accepted at this stage will depend on a number of factors:

  • How soon do you plan to return to work
  • Whether you have income from other sources, such as temporary or secondary employment
  • How did you manage your finances while you were unemployed (i.e. were your other loan payments made on time?)
  • That your credit history is free from late payments or delinquent loans
  • The size of your deposit

Here are some strategies that can help you move your mortgage application forward quickly after you return to work.

Apply with a co-borrower or co-signer

If your application includes a co-borrower, it may be easier to get a mortgage after unemployment.

Your lender may consider your co-borrower’s income, debt-to-income ratio (DTI), credit reports, credit rating, and assets to assess their ability to make monthly mortgage payments.

Before you apply, have an honest conversation about your co-borrower’s debt level. You will need to co-borrow with someone who has the income, credit rating, and DTI to qualify for a mortgage.

Someone with a lot of credit card debt or a large load of student loans may not help your application.

Another option can be a non-occupying co-signer. While co-signers usually can’t make up for bad credit, they can be especially helpful in filling income gaps on a mortgage application.

Qualify for a Mortgage Based on a Letter of Offer

If you’ve been fired or put on leave due to the coronavirus, but received a job offer, there may be another option for you.

Most lenders will accept a letter of offer of employment and even allow you to close your loan without actually starting the job.

Letters of offer of employment are generally considered if they meet six basic criteria:

  1. The letter of offer should not contain any conditions or contingencies of employment, such as “dependent on a clear background check”
  2. The start date stated in the letter of offer must fall within 90 days of the mortgage closing date
  3. The letter must clearly state your rate of pay and start date, and be signed by you and your new employer
  4. You must provide proof that the house you are buying will be your primary residence
  5. You must provide proof that the home you are purchasing is either a detached single-family residence, a townhouse, a condo, or a planned unit development project.
  6. You must be able to demonstrate that you have sufficient reserve funds to pay mortgage payments, property taxes and home insurance between the close and your start date (usually up to three months), as well as three more. months of reserves

If you meet all of these conditions, you could get a mortgage and buy a house with just a letter of offer in hand – before you even get back to work.

Check your mortgage eligibility. Start here (August 6, 2021)

What about refinancing on unemployment?

Generally, the same income rules for home buyers also apply to homeowners who wish to refinance their existing mortgages.

If you currently have a conventional loan – a loan secured by Fannie Mae or Freddie Mac – and you are unemployed, you will likely need proof of new employment and future income before you can refinance your loan.

The only possible exception is homeowners with VA loans or FHA loans.

These government guaranteed mortgages have access to Streamline Refinance, a low doc mortgage refinance program that does not require the lender to recheck your income or employment.

Many mortgage lenders will check income and employment anyway because they want to know that you will be able to make your loan payments.

But if you can find a lender offering easy refinance without income or employment verification, you may be able to refinance today’s low mortgage rates even if you are unemployed.

The exception: seasonal workers and entrepreneurs can buy an unemployed house

For seasonal jobs such as landscaping and construction, it is possible for lenders to document unemployment income when you apply for a home loan.

This is because these professions may have a history of regular income from unemployment during their slack periods.

Here’s an example: Seasonal workers usually do a job, the job is done, and then they’re laid off. When a new project arises, they are rehired.

During the time between projects, the seasonal worker applies for and receives short-term unemployment benefits.

In this case, their seasonal unemployment income can be used to qualify for the mortgage.

However, he still has to respect the two-year history rule. If a seasonal worker can prove that they have received unemployment payments consistently for at least two years, this may be taken into account when applying for a mortgage.

There is an important caveat to note.

Unemployment compensation cannot be used to qualify the borrower unless it is clearly associated with seasonal employment that is reported on federal income tax returns signed by the borrower.

And, the lender should verify that the seasonal income is likely to continue.

Additional considerations for unemployment income

Right after your credit score, your income plays a major role in the home loan process.

Even though unemployment income can be averaged and factored into a mortgage qualification in rare cases, there are a few important things to remember.

Although unemployment income can be averaged over the past two years, as well as since the start of the year, your lender should verify income from a current job in the same field. This means that you must be employed at the time you apply.

Mortgage borrowers CANNOT count unemployment if they are currently unemployed.

Additionally, if you are currently unemployed, your lender may not count income from previous employment or income from unemployment until they can verify that you have a new job.

Other forms of income for a mortgage

Normally, lenders cannot count unemployment benefits as income. But they can allow you to qualify when you bring proof of disability benefits to the table.

For this to work, your monthly disability payments – whether from your own long-term disability insurance or Social Security policy – must be scheduled to continue for at least three years.

You can also use a former spouse’s alimony or child support payments as income on your mortgage application.

Again, you will need to prove that the monthly payments are expected to continue for three years. You may also need to prove that you have received payments consistently over the past two years.

Make sure your loan officer knows in advance if you plan to use disability alimony, alimony, or child support as income, especially if the lender’s pre-approval process has failed. not ask what types of income you plan to document.

And be sure to research any closing cost or down payment assistance programs in your area. These can help reduce your loan amount, making your eligibility easier.

Don’t cancel your home buying plans because you lost your job

Low interest rates make home affordability more attractive to many Americans, whether they are first-time buyers or existing homeowners looking to relocate or refinance.

While unemployment income can stifle your homeownership plans, all hope is NOT lost. Talk to a few mortgage lenders about your specific situation.

There is still time to join the millions of other homeowners who have already benefited from an incredibly hot real estate market.

Check your new rate (August 6, 2021)


Leave A Reply

Your email address will not be published.