What About Refinancing On Unemployment
Generally, the same income rules for home buyers also apply to homeowners who wish to refinance their existing mortgage loans.
If you currently have a conventional loan one backed by Fannie Mae or Freddie Mac and youre unemployed, youll likely need proof of new employment and future income before you can refinance your loan.
The only possible exception is for homeowners with VA loans or FHA loans.
These governmentbacked mortgages have access to Streamline Refinancing a lowdoc mortgage refinance program that doesnt require the lender to reverify your income or employment.
Many mortgage lenders will verify income and employment anyway, as they want to know youll be able to make your loan payments.
But if you can find a lender offering Streamline Refinancing with no income or employment verification, you might be able to refinance into todays low mortgage rates even while unemployed.
Your Student Loans Can Affect How Much Home You Can Buyhere’s How
Lindsay VanSomeren is a credit card, banking, and credit expert whose articles provide readers with in-depth research and actionable takeaways that can help consumers make sound decisions about financial products. Her work has appeared on prominent financial sites such as Forbes Advisor and Northwestern Mutual.
If you’re paying off student loans, you wouldn’t be the first person to ask, “Can I get a mortgage with student loans?” Nationwide, over half of people under age 39 said that their student loans have delayed saving for a down payment and, ultimately, becoming homeowners, according to a 2020 report from the National Association of Realtors.
First, the bad news: your student loans will affect your ability to get a mortgage. The good news is it’s still quite possible to get a mortgage even if you have student loans. It just depends on your situation.
Low Income And Claiming Benefits
Getting a mortgage with a low income is possible. In fact, using benefits towards your mortgage application when you have a low income can be helpful. This is because the income from your benefits can provide a top-up to your income, allowing you to potentially borrow more.
Lenders will also assess your income each time you apply for a mortgage. Typically, the more you earn, the more you can borrow. That said, if youre currently earning a lower than usual income, lenders may assess your savings and assets in addition to the benefits you receive to make their final decision.
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How To Protect Your Finances During Unemployment
Although we are living in extremely uncertain times, it is still important to protect your finances to ensure you are secure when you return to the workforce. Some steps you can take to help protect some of your assets include:
- Apply for unemployment benefits the current executive order permits an extra $400 per week to individuals collecting unemployment.
- Do not tap into your 401 or retirement accounts, unless as a last resort.
- If you have been furloughed or laid-off, check to see if your healthcare benefits are still available to you.
The Exception: Seasonal Workers And Contractors May Be Able To Buy A House On Unemployment
For seasonal jobs such as landscaping and construction, its possible for lenders to document unemployment income when you apply for a home loan.
Thats because these professions may have a history of regular income from unemployment during their off seasons.
Heres an example: Seasonal workers generally do a job, the job is completed, and then theyre laid off. When a new project comes up, theyre rehired.
During the time between projects, the seasonal worker applies for and receives shortterm unemployment income.
In this instance, their seasonal unemployment income may be used for mortgage qualifying.
However, it must still adhere to the twoyear history rule. If a seasonal worker can document they received jobless payments consistently for at least two years, this may be considered when applying for a mortgage.
Theres one important caveat worth noting.
Unemployment compensation cannot be used to qualify the borrower unless it is clearly associated with seasonal employment that is reported on the borrowers signed federal income tax returns.
And, the lender must verify that the seasonal income is likely to continue.
Additional considerations for unemployment income
Second only to your credit score, your income plays a major role in the home loan process.
Even though unemployment income may be averaged and counted towards a mortgage qualification in rare cases, there are some important points to remember.
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Should You Continue With Your Home Purchase After Youve Lost Your Job
What if youve already qualified for a mortgage, and your employment circumstances change? Simply put, you must tell your lender. Hiding that information might be considered fraud, and your lender will find out when they verify your information prior to closing.
If youve already gone through the approval process, then you know that your lender is looking for steady income and employment.
Here are some possible scenarios where you may be able to continue with your purchase:
- If you secure another job right away and the job is in the same field as your previous employment. You will still have to requalify, and it may end up being for less than the original loan, but you may be able to continue with your home purchase. Be aware, if your new employer has a probationary period , you might not be approved. Consult your broker.
- If you have a co-signer on your mortgage, and that person earns enough to qualify on their own, you may be able to move forward. Be sure your co-signer is aware of your employment situation.
- If you have other sources of income that do not come from employment, they may be considered. The key factors are the amount and consistency of the income. Income from retirement plans, rentals, investments, and even spousal or child support payments may be considered under the right circumstances.
Getting The Straight Answer On Being Able To Qualify For A Mortgage With Having Multiple Jobs And Employment Gaps In The Past 24 Months
Remember that all lenders need to meet the minimum agency mortgage guidelines of FHA, VA, USDA, FANNIE MAE, FREDDIE MAC.
- However, lenders can have higher lending standards of their own called lender overlays
- Therefore, not all lenders have the same lending requirements on government and/or conventional loans
- This is where many borrowers may get conflicting answers to questions asked
- Borrowers should study the basic agency mortgage guidelines before shopping for a mortgage
- This way, they will know if they meet the minimum agency guidelines of the loan program they are applying
- If they are told they do not qualify, borrowers will know whether they do not meet the minimum agency guidelines or they do not qualify with the individual lender due to their overlays
Gustan Cho Associates has no lender overlays on government and/or conventional loans.
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Be Careful With Bonus Or Commission Income
Kyle Dickmann, president of Denver’s Dickmann Taxx Group, says that borrowers need to be cautious about taking on new jobs in which a large portion of their yearly salary will be made up of bonuses or commissions that can rise or fall. Lenders are more nervous about income that isn’t as steady as a traditional salary.
“The two-year job history is actually a bit overstated,” Dickmann said. “The bigger issue is how much of your paycheck is a fixed amount, like a salary, and how much is commissions or a bonus.”
Dickmann knows this. When he was a young attorney, he applied for both a mortgage and car loan without realizing that a large portion of his earnings included bonuses. His lender turned down his application for a mortgage, while his auto lender stuck him with a high interest rate.
The good news? If you can prove that your bonus or commission income is stable, lenders will accept it. This, though, requires time, and time isn’t something applicants have when they take on a new commission-heavy job just weeks or months before applying for a mortgage.
Dickmann, for instance, had to wait six months to show the bank that his bonus income was stable, and he had to prove this by showing his lender those six months’ worth of paycheck stubs.
“While job history is important, my experience has been that establishing stability in income can easily overcome the two-year job history limitation,” Dickmann said.
Can I Qualify For A Mortgage Based On An Offer Letter
Most lenders will accept the employment offer letter for laid-off applicants who received a job offer allowing applicants to close the loan before starting the job.
Employment offer letters are considered if they meet the following criteria:
- The job offer cannot have conditions or contingencies, such as being dependent on background or reference checks.
- The job should start within 90 days of the mortgage closing date.
- The letter must include a starting date, salary and be signed by both the employee and the employer.
- Applicants must provide evidence that the home will be their primary residence and is a single-family home, a townhome, condo, or Planned Unit Development.
- Applicants must show they have reserve funds to cover mortgage payments, property taxes, and homeowners insurance for the time between closing and the job start date, on top of an additional three months of reserves.
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Qualify Based On An Offer Letter
Even if you havent started your new job, you may be able to qualify based on an offer letter.
Some qualifiers exist for this type of proof of income. For example, the letter may have to show that the borrower will be employed within 90 days of obtaining the mortgage, Gelios said. It will also need to show how much the income will be and how its going to be paid out for example, salaried or hourly.
Buying A Home While Unemployed
Although you cant purchase a home using unemployment income, it is possible to get a mortgage while youre unemployed. According to Jason Gelios, a Realtor at Community Choice Realty in the Detroit area, there are other types of income that could be considered.
Income such as investment dividends, Social Security income, and having a co-signer or any other type of income coming in from a non-traditional source, are some of the options, Gelios told The Balance by email.
So why wouldnt unemployment benefits be considered? This money is not considered to be qualified income for mortgage borrowers because it is short term, explained Jeff Gravelle, chief production officer at NewRez, a mortgage lender based in Fort Washington, Pennsylvania. In order to get a mortgage while unemployed, you would need to have at least one person on the loan application who is able to provide proper financial documentation that proves qualification, Gravelle told The Balance by email.
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Should You Adjust Your Must
If your finances have taken a large hit due to unemployment a big question you may have to ask yourself is whether or not youre willing to adjust exactly what you want in a home, or if you should delay the process a bit longer. Are you willing to adjust your budget and must-haves for a home or is it worth it to delay the process to save more money?
How Unemployment Affects Your Credit
Filing for unemployment does not directly hurt your credit score. However, being unemployed can lead to scenarios that do. The main culprit? Overspending.
“If borrowers increase the use of credit card spending while unemployed, their credit utilization will increase and that can signal an increased amount of risk to lenders,” Tayne tells CNBC Select.
Additionally, you might miss payments because you’re earning less and juggling the same bills. “This will also be a red flag to creditors that you’re having a hard time managing your debt and paying your bills,” says Tayne.
Unemployment typically pays you a percentage of your normal take-home pay, so you should aim to significantly reduce wherever you can. And if you do have a balance on your credit card, be sure to always make at least the minimum payments. Making on-time payments is the most important factor for your score.
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Qualifying For A Mortgage After Unemployment With Lender With No Overlays
Gustan Cho Associates is one of the very few national lenders with no lender overlayson government and conventional loans.
- Over 75% of our borrowers at Gustan Cho Associates are folks who met the minimum agency mortgage guidelines but could not qualify for a mortgage due to the individual lender overlays
- At Gustan Cho Associates, we just go off the automated findings of the automated underwriting system
- Home Buyers who are having a hard time qualifying for a mortgage after unemployment and employment gaps needing to qualify with a national mortgage company licensed in multiple states with no overlays on government and/or conventional loans can contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response
- Or email us at
Gustan Cho Associates has zero overlays on FHA, VA, USDA, and Conventional Loans. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.
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What If I Cannot Afford To Stay In My Home
Hopefully, your unemployment is only temporary and you are able to arrange a short-term fix to help you meet your mortgage repayments whilst you secure new employment. If this is not the case, however, then staying in the home may not be feasible. You may want to consider a longer-term fix.
If you are facing repossession, it may make sense to take control of the situation and put your property on the market yourself. You can agree to a sale at the best price and repay your mortgage debt in full, plus arrears. Taking this action proactively will avoid having a repossession order registered against you, which could severely affect your chances of getting a mortgage again in the future.
If however, you owe more than your home is worth, you may have to consider a short sale. This is where you agree with the lender that they will accept the amount you sell your home for as full repayment of their loan, even though it is less than the amount you actually owe. Your lender would have to agree to write off the shortfall amount.
You could also explore something called Deed in Lieu of Foreclosure. With this option, your lender agrees to release you from your mortgage in exchange for you giving them the deed to your home. Both this option and a short sale will have a negative impact on your credit rating.
If youd like to chat, please contact us today.
The Economy Guides Mortgage Rates
- Mortgage interest rates are mainly driven by the state of the economy
- Things like unemployment and new job creation can have a big impact
- Good news = a growing economy and higher rates
- Bad news = a stagnant/contracting economy and lower rates
While there are plenty of economic indicators that affect the direction of mortgage rates, perhaps the biggest is the monthly Employment Situation report, delivered by the Bureau of Labor Statistics on the first Friday of each month.
Its affectionately known as the jobs report or the NFP, which stands for nonfarm payrolls .
The latest report, which was released a few days ago, revealed that nonfarm payroll employment increased by 943,000 jobs in July, well above the consensus estimate around 865,000.
At the same time, the unemployment rate declined 0.5% to 5.4%, again beating its estimate of 5.7%.
Additionally, job growth was also upwardly revised for both the month of May and June.
In other words, good news all around, except for the fact that millions of jobs have yet to return since being lost around the time COVID-19 took hold.
The bond market appeared to immediately take notice, with yields on the 10-year rising from around 1.18 to over 1.30 over the past couple days.
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Stay Up To Speed On Your Credit
It’s crucial to stay aware of your financial health, whether you’re employed or not.
Check your credit report during periods of unemployment to make sure you’re not falling behind on bills, and to spot potential fraud. That way, you’ll be in the best position possible to access new credit when you’re ready to, and your time between jobs won’t have significantly affected your ability to achieve the financial goals you dream about.
