Obtaining a mortgage without a two-year work history

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Obtaining a mortgage without a two-year work history
Obtaining a mortgage without a two-year work history

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Most mortgage lenders prefer that you work consistently in the same field for at least two years (2) before you are eligible for a mortgage. It is still possible to get one with a shorter work history. However, you will need to prove that you are employed and that you have a steady income. If you are a recent graduate, you may still be eligible for a mortgage if you have a job offer with a high level of monetary compensation. The position should also represent a stable career path. Advantage if the position is in the same field as your degree.

You get an exemption even if you were only recently discharged from the military, and now you have a job similar to what you did while enlisted. Lenders usually refer to this as a continuation of the transaction. Also, a medical report of a medical condition that prevented you from working may be acceptable.

To win a mortgage with a short work history, it is helpful if you have factors that compensate for the lack of a work history. These can include a large down payment or a high credit score. The interest rate on your loan may be slightly higher than usual to compensate for the increased risk associated with your short work history.

Changing jobs before buying a home

Changing jobs before or during the mortgage application process can be a problem for lenders. This is usually the case if the transition is from a higher-wage job to a lower-wage job. This may also be a problem if you move from a more stable industry to a less stable industry. If you are moving from one job to another, and your income remains relatively stable, then that should not be a problem.

This applies even if the jobs are not in the same field. Lenders seek stability above all else. If you have a history of moving from job to job, lenders may see you at high risk. However, frequent job changes are not bad in themselves. If your income and responsibilities increase from job to job, it should not affect your mortgage application.

If you have gaps in your employment history, you may still be eligible for a mortgage, provided you can show that your income is adequate, reliable and sustained, and you have a good reason for the gaps. If you get a new job after six (6) months or less, all you need is to get your first salary within 30 days of closing your loan. If you have been unemployed for more than six (6) months, you are unlikely to get a loan.

There are many requirements that you must meet when applying for a new mortgage or when you are planning to refinance your existing loan. Lenders will check your debt levels, income and credit score. They will also look at your employment history. Fortunately, getting a mortgage with a new job is far from an impossible task.

The rule was that lenders prefer to work with borrowers who have worked in the same field for at least two years. But this rule has more leeway than other underwriting requirements. Because of this, mortgage lenders are more likely to ignore a full work history at new beginnings in a new career than a low credit score or a high-income debt ratio.

And this is good news for applicants who started a new job just a month or two before applying for a mortgage.

Fixed salary is what matters

Chris Chanton, sales manager at Equity Prime Mortgage in Crofton, Maryland, said a new job is not always an obstacle for borrowers. As long as the new salary pays a salary, and is not based solely or largely on commissions, then the applicant should have little difficulty in obtaining a mortgage, as long as this new salary provides a large enough income to support the new month of the borrower. Mortgage payments, Shanton said.

Complications can arise when borrowers rely on non-salary income, Shanton said. Borrowers who have moved from paid employment to the self-employed will have to present tax refunds worth at least two years to prove that their new income is stable and is not expected to disappear any time soon. If they cannot provide these returns, lenders will not treat these dollars as self-employed as part of their qualifying income.

Borrowers who move to a new job in another field may give lenders a break. But most lenders are willing to ignore the change in job as long as, again, when the new job pays on a pay basis, Chanton said.

“If a borrower changes field of work, suppose the borrower was a scientist and is now a lawyer, then that is a case in point,” Shanton said. “Although usually, as long as it’s a paid job, you’re okay to get a mortgage now.”

Beware of income from commissions or bonuses

Kyle Dickman, president of the Denver Dickmann Taxx Group, says peacekeepers should be careful about getting new jobs where a large portion of their annual salary will consist of bonuses or commissions that can go up or down. Lenders are more nervous about unstable income like a traditional salary.

“The two-year history at work is actually a bit exaggerated,” Dickman said. “The bigger issue is how much of your salary is a fixed amount, like a salary, and how much is a commission or bonus.”

Dickman knows that. When he was a young lawyer, he applied for both a mortgage and a car loan without realizing that a large portion of his profits included bonuses. His lender denied his mortgage application, while his car lender stuck it at a high interest rate.

The good news? If you can prove that your income from the bonus or commissions is stable, lenders will accept it. However, it does take time, and time is not something that applicants have when they take on a new commission-intensive job just weeks or months before applying for a mortgage.

Dickman, for example, had to wait six months to show the bank that his bonus income was stable, and he had to prove it by presenting six-month pay slips to his lender.

“While work history is important, my experience has been that establishing income stability can easily overcome the limit of two years of work history,” Dickman said.

The numbers that are more important
Lenders are more interested in your 3-digit credit score, which shows how much you have paid your bills and handled your credit in the past, and the debt-to-income ratio. This ratio measures how much of your gross monthly income is swallowed up by your monthly debt obligations.

Lenders want your total monthly debt, including your estimated new mortgage payment, not to equal more than 43 percent of your gross monthly income. If your ratio is higher than that, you will have a hard time winning a loan. Lenders also see FICO’s triple-digit credit scores of 740 or higher as excellent. Scores in the 700 range will usually charge lower mortgage rates and easier approvals.

If these two numbers are strong, the two-year work history is not so important. As long as you have enough income to support your monthly payments, most lenders will ignore the fact that you took a new job three weeks ago.

“A two-year history at work is a myth,” said Bob Gordon, a real estate agent at Berkshire Hathaway in Boulder, Colorado.

Gordon pointed to the last two college graduates, both with no work history, to whom he helped buy homes in the Boulder area. The two buyers did not even start with the new jobs they received, and presented the lenders only with a letter of intent from their new employers. The two also had a short credit history, but they were good historians, with no missed payments or delays in their listings.

The key to persuading lenders to ignore the work transition? You will need those strong credit scores and debt-to-income ratios.

In reality, all lenders are concerned about the ability of borrowers to make their repayments. Care is taken with income from commission or bonus, but at the end of the day, it is the numbers that determine.

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