20 Apr How to Establish Stable Income for Home Ownership
You want to buy a home but, before you move forward, you need to make sure that everything is in order. That includes establishing a stable income. If you don’t have a stable income, you won’t find a lender to loan you the money. It’s that simple. Let’s look at what you need to do to establish a stable income. You will realize that the rules change, depending on what you do.
The Rules for Self-employed Individuals
The thought of getting a home loan if you’re self-employed can be a little frightening, but it’s not as bad as you might think. You have tax documents and bank statements to prove your income, and it will all be fine as long as you don’t make a critical mistake. Do not make any structural changes before applying for a mortgage loan. In other words, don’t turn your sole proprietorship into an LLC until you sign on the dotted line.
Part-time Hourly Employees
You do not need a full-time job to establish a stable income for a mortgage loan. However, you do need to stay in your job for a bit. If you change jobs right before applying for the loan, the mortgage lender might put the brakes on the entire process. Lenders like to see a pattern of employment for both self-employed and part-time hourly employees. Until you can establish that pattern, they will be reluctant to loan you any money. Avoid changing jobs until after you get your new home. Then, if something better comes along, you can grab it without worrying.
You have much more leeway if you are a salaried employee. You don’t have to establish as much stability in your job. In fact, you can change jobs right before you sign the paperwork, and that will likely be fine. It can even be to your advantage. Let’s say that your lender is going to analyze salary more than anything. You make $100,000 a year at your job. You go out and get hired at a new job that brings you $125,000 a year. Your lender will like the fact that you are making more money and will be more likely to give you the loan. Of course, if you are coming in to sign the paperwork on Friday and your new job starts on Thursday, you might want to talk about it with the lender first. In that case, it might be better to let the ink dry on the mortgage paperwork before you start a new job.
Gaps in Employment
It’s important to note that regardless of your job type, you need to have two years of continuous employment, without gaps. If you do have any gaps, you need a written explanation. You will need to explain the transition between jobs fully, and if that transition is too great, you might not get the loan. If you have spent much time off work, it might be best to stick with your job for a year or two and then apply for a mortgage loan.
As you can see, establishing a stable income isn’t nearly as difficult as you previously thought. The main key is stability. Unless you are a salaried employee who can make more at another job, stay put during the home buying process. The longer you stay there, the more likely it is that you will be approved for the loan. Then, you can a make any changes that you want. You can seek out a new job, all while knowing that you already have the home of your dreams.