Qualifying for a loan after returning to work

Jay Vorhees at JVM Lending has shared another great blog, which I will share below. I did not include the last section, which is not applicable to my clientele, but you can read the entire thing in the link above. Look for my input at the bottom. As always, I welcome your feedback on this topic!

Many people are wondering how soon laid off and furloughed borrowers will qualify for mortgage financing once they return to work.

Loan Agreement Signature - Free image on Pixabay

Employment Gap Under Six Months

If the layoff or furlough lasts less than six months, lenders will be able to fund most loans as soon as borrowers return to work (for conforming, FHA, and VA loans). Some jumbo lenders, however, may require 30 days of job-seasoning before they will fund.

Employment Gap Over Six Months – Returning to Same Job/Industry

If a layoff lasts more than six months, things get more complicated. If borrowers return to the same job or a similar job in the same industry, they will be able to qualify for conforming (Fannie Mae/Freddie Mac) financing 30 days after they return to work, in most cases, with 30 days’ worth of paystubs. FHA and jumbo borrowers may require six months of job-seasoning, however.

New Job/New Industry

If laid off borrowers find new jobs in new industries, they will have to “season” their new jobs for six months in most cases (and up to two years in some cases) before they will qualify for any type of loan. The exception to this rule is for borrowers who recently graduated from college or any type of professional, training, or graduate program that relates to the borrower’s field in some way. Recent grads can usually qualify for financing as soon as 30 days after starting a new job.

Kristin’s Two Cents: Another topic that has come up is forbearance -a creditor’s temporary forgiveness of debt (i.e. to postpone your payment). Many think, “Hey, why not take advantage of not having to pay my mortgage for a few months?” even if they can, because there is no harm. Well, it will impair your credit (most will report it, you will be required to pay it back once the period is over – and with rates dropping, you won’t be able to refinance for one year after you have fully paid back the forbearance. Do you want to miss that opportunity? Click for more information about forbearance.

Applying for a Home Loan? See JVM Lending’s “Don’t” List!

Once you’re pre-approved, the last thing you want to do is knock yourself out of qualifying range. My friend Jay Vorhees at JVM Lending is a great source on this issue, as he’s seen hundreds of borrowers in this situation. Now, he sends them a list of “actions to avoid” with every pre-approval letter. Heeding his advice will help you at least prevent delays and extra paperwork. Take a look!

1. Do not make large deposits that can’t be explained. When you are trying to qualify, any large deposit – think $500 for a new mattress, or all-cash payments – must be explained. Otherwise, an entire account can become invalid and unusable for qualifying. Always keep a paper trail to make large deposit explanations easier!

2. Do not take on new debt. If you increase your credit card balances, finance a vehicle, or take on debt in another way, your ratios will be impacted and it will reduce your maximum purchase price.

3. Do not take vacation days if you’re paid hourly. A single day off work can push you out of qualifying range if your debt ratios are high and approaching your limit.

4. Do not spend liquid assets. Pre-approval software relies on specific liquid asset levels. So, pre-approval amounts can change if liquid assets are significantly reduced.

5. Do not miss payments on any debts reporting on a credit report. This one is pretty obvious, and you should avoid missing payments anyway, but missing monthly payments that reduce your credit score may also reduce your qualification amount!

6. Do not co-sign for someone else’s debts. That’s a dangerous maneuver anyway, but even if you’re just a co-signer, the debt will show up on your credit report. That makes you responsible for the debt and the payments.

7. Do not file taxes with a tax liability owing, or with less income than in previous years. This mostly applies to self-employed borrowers (especially during tax season). The most recently filed tax returns will be what the qualifying income is based on, and all tax liabilities must be proven paid. JVM recommends that borrowers file an extension when possible if they are making offers during tax season.