Are you considering becoming a part of the Great Resignation? If so, you may have some important considerations that affect your ability to borrow money with a home loan. For example, “If I quit my job and move to a remote location what kind of house can I buy?”. Even if you are not leaving the workforce it seems that half are considering leaving their current job. Since lenders rely on income “stability and likeliness to continue” it is critical to consider how a change might affect your ability to get a loan to buy a home. We put together some situations we’ve seen and the qualifying ramifications that go along with the change.
|Relocating: Leaving employment||Active income (from a job) will go away. Only passive sources (like retirement income) can be used. This may be obvious, but if you are leaving employment we cannot use it to qualify.|
|Relocating: New employment||We can use income from a new salary or full time job with an offer letter from the new employer.|
|Relocating: Same employment||We just need documentation from your employer (a letter) that you are capable of working remote and living anywhere.|
|Relocating: Self Employed to Self Employed||In this situation, we need strong documentation supporting that you can work from anywhere or that your business can operate unaffected without you.|
|Going from Self Employed to Salary||We can use new income and salary without regard for prior income.|
|Going from Part time to Full Time||Good news! We get to use your new income going forward. We just need to get a statement from your employer documenting the transition.|
|New Second Job||Depending on the program, we need either a one year history or a 2 year history of having a second job in conjunction with a primary job to consider the additional income.|
|Going from Employee to Self-Employed (or 1099)||This is the danger zone. Current income cannot be used until it is seasoned and shows on your taxes. We will need at least a full 12 months income reported on the last year’s taxes to be able to use this income source.|
|Going from Employee to Partner with less than 25% ownership||This is common for attorneys and professional firms. Unfortunately, newly made partners will have difficulty using that income source until at least two tax years. This income is averaged off the last two year’s K-1 earnings and guaranteed payments.|
|Commission, Bonus, and Overtime||Using commission and/or bonus income at a new employer gets tricky. First, we would need to document that you’ve received any of these variable income sources over the last 24 months. For example, you cannot start a new job with commission and expect to use that income early in your employment unless you had history of that type of income at your prior employment. A good example of solid history would be a salesman changing car dealerships. Next, in order to use this income you would have had to receive it at the new employer. If your commissions take 3 months to ramp up or your bonus is paid only annually we won’t be able to be to use either for qualifying. If this is a small portion of the income it may not be a big deal, but if you are primarily getting commission, bonus, and OT it should be a major consideration.|
Contact us with any questions you have about qualifying for a home loan or refinance, we’re here to help!