Getting a Mortgage: What Is Income Stability?
Most people realize that they need income, employment and acceptable credit to qualify for a home loan. But these aren’t the only factors we consider. We also evaluate the stability of income when determining whether you’re a qualified candidate for a mortgage.
This involves looking at the circumstances around your employment to assess whether your income is likely to continue into the foreseeable future.
A mortgage loan is a long-term commitment. And while it’s true that your employment situation can change unexpectedly after closing on a mortgage, all borrowers must demonstrate stability of income at the time of approval.
Here’s a look at three factors we take into account.
1. Gaps in employment
Getting approved for most mortgages typically requires 24 months of consecutive employment prior to applying, preferably with the same company.
If you have an employment gap longer than one month at any time during the previous two years, be prepared to provide an explanation.
Two years of consecutive employment is a sign of stability. But you may still qualify for a home loan if you took time off due to an illness, a death in the family, maternity leave or an injury — providing you meet the requirements of a particular mortgage program.
2. Frequent job changes
Along with being employed for 24 consecutive months, remaining with the same employer during this period is another sign of stability, and often preferred when getting a mortgage loan.
To be clear, changing jobs more than once over the past couple of years doesn’t automatically disqualify you from getting a loan, but again, we look at the entire picture and consider the reasons for these job changes.
Do you have a pattern of switching jobs for the sake of switching? Or were these employment changes necessary to advance your career, and resulted in a job with higher pay and better benefits?
A job change might not be an issue when you stay in the same field, and when your salary remains the same or increases.
On the other hand, jumping from one field to another field or having a recent history of unpredictable income are signs of instability. You may have to postpone buying a home until your employment and income become more consistent.
3. You’re recently self-employed
Being newly self-employed may also affect your ability to get a mortgage. Again, it comes down to the stability of your income. You might run into problems if your business is less than one or two years old, or if your income decreases from one year to the next.
Typically, self-employed people must provide two year’s of tax returns and other documentation as proof of income. But in some circumstances, a self-employed borrower might be able to qualify for a home loan after only being in business for one year.
Speak with our loan experts for more information on qualifying for a mortgage as a self-employed borrower.
If you have any questions about qualifying for a home loan, income requirements, or if you need information about different loan programs, contact the experts at Cherry Creek Mortgage. We’ll take a look at your income, employment history, assets and credit to determine how we can best serve you on your journey to homeownership.