Getting a Mortgage with a New Job
Mortgage lenders typically want to see consistent employment for the past two years before they will qualify a borrower for a loan. But what happens if you get a job offer right before you apply for a mortgage? What if you don’t have a work history or have a gap in your employment?
If you have an offer letter from an employer, you could be a good candidate for an offer letter mortgage or projected income mortgage. If you don’t, there are other options to consider such as a bank statement mortgage, which bases the lending decision on your bank statement rather than W-2s, or an alternative documentation mortgage, which bases the decision purely on your credit report.
What is an offer letter mortgage?
You don’t have to put off applying for a mortgage until you’ve started work with a new employer. An offer letter mortgage, or a projected income mortgage, bases a mortgage loan on a job offer from an employer that shows your start date and the anticipated income. For conventional loans, the lender will require the borrower to provide a pay stub once they do start work before the funds are delivered. So that means you can get approved but you likely won’t get the funds until you’ve started your job.
To qualify for a mortgage, lenders typically want to see that a borrower will have a stable income that will last for at least three years. It helps if the move is within the same industry, said Jon Boyd, who runs a boutique real estate brokerage firm in Ann Arbor, Mich.
“In my experience, probably 95 percent of the lenders that I work with would approve the loan if a homebuyer can present an offer letter from an employer in the same industry as their prior work history,” he told LendingTree. Many people mistakenly think that their lender will deny them if they are taking a job that does not present any clear financial or professional gains, like a promotion or a raise. But Boyd says that’s not the case.
“People move to a different job for many reasons — a lifestyle change, for example,” he said. “With a track record, as long as the buyer has an offer letter in hand, they will be fine 95 percent of the time.”
For example, a teacher who has been offered a job with a new employer a few miles away may want to buy a new house so that she has less of a commute. That teacher need not prove that the transition is to a higher paying job. In this case, the lender will look favorably on the teacher because she has a track record and guaranteed future income – as stated in the offer letter – in the same industry.
When you submit your application for an offer letter mortgage, you should make sure that the employment contract identifies the employer and is signed by both you and the employer. The contract should state the terms of employment, the position, the type and rate of pay and the start date.
Guidelines for getting an offer letter mortgage
To qualify for a conventional loan with an offer letter, your lender must have an executed copy of your employment contract with the anticipated income, according to guidelines set by Fannie Mae.
You will also need to provide a pay stub once you start the job showing the income that was used to qualify you before the loan can be issued. In other words, you can get approved, but you won’t get the loan until you start your new job.
That may change soon. Fannie Mae is updating its policies so that a loan can be delivered before you start work, but the following conditions apply:
- The property must be one unit, and it must be your principal residence.
- Your new employer must not be a family member or an interested party in the investment.
- You must be qualified based on fixed income.
- Your start date must be within 90 days of the date of the note.
What counts as projected income?
In addition to your future income from your new job, other income can count as part of your total financial picture when a lender is reviewing your application. Depending on your situation, foreign income, foster care income, housing or parsonage income and income from any investment dividends can be used when calculating your gross income.
So long as you can prove that you have a guaranteed offer of employment and you will start your new job within 60 days of closing your mortgage loan, you may be able to qualify for a projected income loan through the Federal Housing Association.
Your lender will have to verify that you have sufficient income or cash reserves to cover your mortgage payment and any other obligations between loan closing and the start of employment. Also, the loan has to close within 60 days of your starting the new job, and you must provide a pay stub once you start your new job before the loan will be delivered.
What counts as projected income?
HUD also states that certain types of regular income may not be subject to federal tax, and the savings can be applied when grossing up your non-taxable income. These include, for example, some Social Security, some federal and state government employee retirement income, child support and military allowances.
For FHA loans, when calculating projected or hypothetical income for qualifying purposes, cost-of-living adjustments, performance raises and bonuses can be included as projected income if the amounts are verified in writing by the employer and scheduled to begin within 60 days of loan closing.
Securing an offer letter mortgage if you have limited work history
What if you are a graduating student and have no work history? According to Boyd, “as long as your position is tied to your education, you’ll be in fine shape with an offer letter. If not, you might be out of luck.”
Boyd experienced this firsthand when he left engineering and switched to real estate. “I am an example of this because when I switched from engineering and entered real estate, I couldn’t get a loan. You have to have two years’ work history in your new field,” Boyd told LendingTree.
Also, he stated that graduates who take a six-month vacation before they start work may not be convincing candidates for an offer letter mortgage.
Saro Vasudevan, co-founder of Eave, a lender specializing in jumbo loans in Colorado, said “Graduates might be required to establish their student credentials – transcripts or graduation certificates – to cover at least two years and would need to have started their job to secure a mortgage.”
Factors that could pose a problem for an offer letter mortgage
Some career moves might be detrimental to the likelihood that you will qualify for a loan.
You’re paid on commission. If your new employment is dependent on commission, that will not be considered reliable future income. If your new employment means changing status from a W-2 employee to a contract employee, a lender will also consider you higher risk because your contract could end at any time.
Changes in pay structure. An employer may make changes to a pay structure that means higher income, but the pay is based on bonuses or commission. This is another scenario where future income is not guaranteed, and you will be considered higher risk and less qualifiable based on future income, despite a higher current income.
However, if such a salary can be verified for the past year to two years, the lender might qualify you. For FHA loans, commission-based income can be counted with less than a 24-month history if you have held the same position with the same employer.
Becoming a contractor.If you decide to become a contractor, or self-employed, you will likely need to show one to two years’ of prior income to qualify for a mortgage with most lenders.
Switching industries.It can be highly motivating to switch, for example, from nursing to farm management if that has always been your vocation, but a lender will not be motivated to lend to you unless you have significant resources to back up the loan.
Job-hopping. Millennials are known for their frequent moves, but a lender will be wary of providing a conventional mortgage loan if you can’t show two year’s consistent employment. Lenders want to see long-term, steady employment to issue a loan at a low fixed rate for up to 30 years. If you don’t have substantial gaps in between jobs, that’s likely OK, but you’ll be required to provide an explanation for job changes.
Whatever your situation with respect to employment, there are options that you can consider and ways to maximize your appeal as a candidate for a mortgage. An offer letter mortgage, a bank statement mortgage or an alt doc mortgage are all things to consider, but the takeaway is that it all depends on the lender. Finding the right one can make the difference between whether you get a loan next week, next year or not at all.