Do I qualify for a home loan without a job?

When you apply for a mortgage to buy a home, the lender wants to know you can afford to pay it back. Typically, that means documenting your income and current employment. But what if you're not working full-time. Can you get a mortgage without a job?

Yes, you can get a mortgage without a traditional job, as long as you can show you have the resources to afford the payments. Learn more about what factors lenders consider, which mortgage types are most amenable, and how you can improve your odds of approval.

Why lenders prefer proof of employment

When you apply for a mortgage, your lender will assess your creditworthiness and your ability to repay the loan. Lenders typically consider the “4 C’s” as part of their underwriting criteria when deciding if you qualify for a mortgage:

• Credit
• Collateral
• Conditions
• Capacity

Income history and employment are tied to capacity.

“Lenders love proof of employment because it suggests not only that you have a stable source of income, but that you are responsible enough to hold down a job," says Martin Orefice, CEO of Rent To Own Labs in Orlando, Florida. "Essentially, your employer serves as a character reference in addition to providing income.”

What lenders will consider if you don’t have a traditional job

If you don't have a full-time job with an employer, your lender will evaluate your overall financial situation and resources to determine whether you can repay a mortgage. Let’s break down what you will have to provide or prove to a lender to qualify for a mortgage under this scenario.

Self-employment income

If you work for yourself and earn self-employment income or seasonal income, your lender may consider these earnings. Tax documents are the most common way to prove income. Documents you may need to provide your lender to prove self-employment income include:

• Form 1099-Misc
• Schedule K-1 forms
• Form 1120
• Form 1065
• Form 1120S
• Schedule E
• Schedule C
• All pages of personal income and business tax returns for the past 2 years

“When you are self-employed or earn seasonal income, lenders usually request tax returns, profit and loss statements, 1099 forms, and business verification for self-employment earnings," says Dennis Shirshikov, a professor of economics and finance at City University of New York-Queens College. "These can include earnings from a sole proprietorship, contractor payments, partnership distributions, or LLC income.

Alternative sources of income

Lenders may consider other reliable sources of income, beyond a full-time job, when researching and determining whether you qualify for a mortgage. Some alternative income sources that lenders may consider include:

• Child-support payments
• Alimony payments
• Rental-property income
• Retirement income
• Investment income
• Dividend payments
• Social Security income
• Disability benefits
• Trust income
• Structured settlements

Assets and reserves

If you have significant cash reserves or other types of assets, that may be sufficient for a lender to approve your mortgage application. For example, your lender may approve your application if you’ve inherited money from loved ones or have enough savings to afford a home.

“Financial holdings like savings accounts, brokerage accounts, retirement funds, or liquid investments are referred to as assets and reserves,” Shirshikov says. “Lenders may demand several months’ worth of reserves equivalent to future mortgage payments.”

Co-signer or co-borrower support

Another way to get the lender to say yes is to have a co-signer. This is often a parent, spouse, or relative who agrees to assume financial responsibility for your mortgage if you are unable to make the required payments. Anyone willing to vouch for you who has sufficient income and a good credit score can co-sign a mortgage.

You also can apply with a co-borrower, who has equal responsibility for repaying the loan and often has legal ownership rights that a co-signer does not. A co-borrower may agree to take out a loan in partnership with you to purchase property that both of you can use. Co-borrowers have a vested interest in the loan from the beginning, while co-signers only step in when the primary borrower defaults on payments.

“Support for a co-borrower can come from a spouse, family member, or, in certain situations, a person with a close financial relationship whose credit and income support the application,” Shirshikov says.

Strong credit history

Your credit history plays a factor in loan approval. Your lender will review your payment patterns, credit mix, debt-to-income ratio (DTI), credit score, and general financial dependability when evaluating your application.

“A good credit score and strong credit history will certainly help here," Orefice says. "But you will still need to prove some kind of income if you want to qualify for the loan.”

Letters of explanation

Another way to help you qualify is to provide your lender with a letter of explanation. This is a relatively brief document that explains your financial circumstances – such as a gap in your employment history, a previous bankruptcy, or another event that would otherwise likely cause the underwriter to deny your loan.

“A letter of explanation can be helpful if your unemployment is temporary and you definitely have a new source of income lined up,” Orefice says. “Combined with a good credit score, this can often lead to qualification.”

Types of home loans that are flexible

Curious which loan options tend to be more accommodating for those without employment or drawing different sources of income? Here’s a breakdown of loan types that are worth considering when you lack a traditional job:

Government-backed loans

Unlike conventional mortgages, government-backed loans safeguard lenders against risk. That means it’s easier for many borrowers to get approved for a government-backed loan. But each government-backed loan program has limits on how much you can borrow, who is eligible to apply, and the property you can buy. The three most popular government-backed mortgages are:

• FHA loans
• VA loans
• USDA loans

“Lower down payments and more flexible income verification are possible with these types of loans,” says Shirshikov.

For example, VA loans have no minimum down payment requirement, but are available only to active-duty military personnel, veterans, and their surviving spouses.¹ USDA loans also have no minimum down payment requirement, but can only be used by low- to mid-income borrowers buying homes in specific rural areas.²

FHA loans are aimed at borrowers with lower credit scores and have limits on how much you can borrow, as well as standards that the property you're buying must meet.

Asset depletion mortgage

An asset-depletion mortgage leverages assets rather than relying on income from steady employment.

This loan type considers your liquid assets as income. This can demonstrate that you have sufficient funds to cover the mortgage and day-to-day living expenses, enabling you to qualify as a borrower. Your assets are used only up front to illustrate that you can afford the monthly mortgage payments − you don't have to cash them in immediately at closing.

No-income-verification mortgage

Certain types of nonqualifying mortgages do not require income verification. These no-income-verification loans may be a good option for those who are self-employed or have seasonal income, though they often charge higher interest rates and come with additional terms and conditions.

Be aware that these loans are difficult to find and are often unadvisable due to high interest rates and the risk of default. Rocket Mortgage does not offer these types of mortgages.

Steps to improve your chances of approval

Here are several recommended steps that can help you be more attractive to lenders when you don't have traditional employment:

• Build your credit and pay down debts. You'll want to check your credit reports, dispute and correct any errors you spot, make consistent, on-time bill payments to build a stronger payment history, and reduce high balances – particularly on maxed-out accounts – which helps decrease your credit utilization and boost your credit score. Also, consider a debt consolidation loan and partner with a reputable nonprofit credit counselor to devise a strategy to pay down your debt.
• Ensure you have significant reserves. Reserves are easily accessible funds, such as retirement or savings accounts. Your lender will prefer that you have enough reserves to make mortgage payments even if you lose income or suffer a setback. While lender and loan rules vary, you may be required to have 12 months of mortgage payments set aside in reserve.
• Prepare your documentation ahead of time. Well before applying for a home loan, collect all your financial and personal documents. These can include recent proof of earnings, tax returns, and bank statements. The lender will also require personal identification, your Social Security number, and verification of your down payment.
• Apply with a co-signer. Consider asking a relative, friend, or other loved one to co-sign your loan.
• Be transparent with your lender. Be up front with your lender about any issues that affect your creditworthiness. That means being transparent about recent job changes, fluctuations in earnings, an impending divorce, and property issues discovered after a home inspection.
• Shop around and compare lenders. It pays to request rate quotes and loan offers from several lenders to find the best deal.

The bottom line: Your dream of homeownership is possible

Yes, it’s possible to get approved for a home mortgage loan when you don’t have a job or consistent earnings, or you are self-employed. Even unemployed borrowers have different loan types and options to choose from. But obtaining a mortgage without traditional employment means you will have to meet certain eligibility requirements. Still, a lack of full-time employment is not always an obstacle to homeownership.

You can start the mortgage process by applying today with Rocket Mortgage.

¹Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

²Rocket Mortgage does not offer USDA loans at this time

Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.