How to Get a Mortgage with a Seasonal Income
Kevin Graham7-minute read
October 29, 2020
If you’re seasonally employed and work only part of the year, you may have trouble qualifying for a mortgage to purchase or refinance a home. Whether your work is truly around a season, such as landscaping or snow removal, or something you do on the side, this type of employment can be categorized as sporadic.
This won’t disqualify you from a mortgage, but it does make the process a little tricky. Here’s what you need to know to get a mortgage with seasonal income.
Documentation You Need To Provide
You need to prove to your mortgage lender that your income is reliable to be considered a creditworthy borrower, even if you do only work for part of the year. For the purposes of qualifying to purchase or refinance your home, you need to provide documentation that you have worked for the same employer for the past 2 years, or that you have worked in the same line of work for the past 2 years.
This is proven based on items like W-2s and tax returns for the past 2 years. Your employer also must provide documentation that indicates you’ll be hired during the following season.
Unfortunately, if you’ve been working less than 2 years, your income will not qualify you for a mortgage. Even if you have been employed for 2 years, you might not qualify if your employer can’t prove there is a reasonable expectation that you’ll be hired during the next season. Your income stability will be very important to the underwriter.
What Happens If You Can’t Prove This?
Those who cannot prove their income reliably over the past 2 years will be ineligible for a mortgage but can reapply once that information becomes available. If you find yourself in this category you have a few options. The simplest answer is you can choose to wait and reapply.
If a piece of real estate is necessary now, ome buyers have two options:
Verify that you have provided all sources of income. If you receive Social Security benefits, any type of interest income, have a second job or if you have a side hustle with income that can be verified, you can use these to help you qualify.
Consider applying for a mortgage with a spouse, family member or even a friend. Adding another person to your application may increase your chances of qualifying, as lenders will take both parties’ credit scores and incomes into consideration. Better chances of qualifying, splitting the costs of becoming homeowners and having another borrower helping you through the process are all benefits of owning a home with another person.
Having the right documentation can be the difference between qualifying for a mortgage and purchasing your own home or not. Before beginning your application, make sure you have the last 2 years’ W-2 forms, tax returns, pay stubs and any other proof of compensation, and verification from your employer that you’ll be employed next season.
What Mortgage Loan Types Can I Apply For?
There’s no real difference in eligibility between what someone qualifying based on seasonal income can apply for and the options for anyone with a year-round income stream. You just have to be able to qualify.
The basics are the same. A lender is going to look at your credit history, debts and monthly income in evaluating your loan application. But seasonal employment as a source of income also comes with its quirks.
Before we get into what qualifying looks like, we should go over the different loan programs available to you. To start looking at scenarios, check out our mortgage calculator.
A conventional loan can be an attractive option when you’re looking at mortgage financing because you can put down a down payment on a one-unit residence of as low as 3% at a competitive interest rate. If you make a down payment of less than 20%, you’ll be paying for private mortgage insurance (PMI), but unlike some other loan types, the mortgage insurance can be canceled once you reach 20% equity.
In addition to the income considerations that we’ll get into later on, you need a median FICO® Score of 620 or better. The other big advantage of conventional loans is that they’re the only loan option from major investors that allows you to purchase a second home or investment property.
With an FHA loan, you can get a 1 – 2-unit primary property through Quicken Loans® with as little as 3.5% down. However, the real attraction with FHA loans comes from the fact that their forgiving even if you have a couple of dings on your credit.
You can get an FHA loan through us with a FICO® of 580 or better as long as you maintain a debt-to-income ratio (DTI) of 45% or lower and a housing expense ratio – your mortgage payment compared to your gross income – no higher than 45%. If you have a slightly higher median credit score of 620 or higher, you may be able to qualify with a slightly higher DTI than you could with other loan options. A 620 score is also required to take cash out.
The downside to FHA loans is a lifetime mortgage insurance requirement if you make a down payment of less than 10%. If you have a higher down payment, you’ll still pay the mortgage insurance premiums (MIP) for 11 years.
Check out this post for more on the difference between conventional and FHA loans.
VA loans are available to eligible active-duty-duty service members, qualified members of the National Guard and reservists, veterans and eligible surviving spouses.
The big benefit of the VA loan is that no down payment is required. Additionally, if you have a 680 median credit score, it’s the only loan option offered by Quicken Loans that allows you to turn all of your existing home equity into cash. Finally, the VA loan often has lower mortgage rates than you can get on other options.
The VA doesn’t set a minimum credit score, but wonders are free to set their own guidelines. At Quicken Loans, we require a 620 minimum median FICO® Score.
The only real downside to the VA loan is the funding fee, which can be paid at closing or built into the loan. This funding fee can be anywhere between 0.5% – 3.6% depending on the circumstances of your VA transaction, the amount of any down payment or existing equity and whether it’s a first or subsequent use.
Certain individuals are exempt from the VA funding fee including those receiving VA disability, Purple Heart recipients who have returned to active duty and surviving spouses receiving Dependency Indemnity Compensation (DIC).
What’s The Difference Between Part-Time Income And Seasonal Income When Applying For A Mortgage?
Having part-time employment and receiving income from seasonal work might sound like the same thing because you’re only working the job for part of the time, either based on the number of hours or times of the year. However, for the purposes of mortgage qualification, there can be a big difference.
A part-time job is defined as work you do for an employer throughout the year that happens to be less than a full-time, 40-hour work week. You can qualify for a mortgage with part-time work because the likelihood of receiving continuous income is high.
Seasonal workers do jobs that are only done at certain times of the year. For instance, if you provide seasonal help with farming or logging, or if you work at a retailer during the holiday rush, that’s seasonal work. It’s also seasonal work if you’re a mall Santa or Easter bunny.
This is being written in the fall, so it seems appropriate to mention that work at haunted houses or cider mills counts. The key difference is that part-time work can be done year-round and seasonal work is only done at certain times.
What Type Of Seasonal Income Can Be Used For Mortgage Loan Qualification?
When it comes to seasonal income, the key to determining whether you can use it to qualify for a mortgage is the regularity and stability of the income. In order to use seasonal income to qualify, you have to show 2 years’ employment history either working for the same employer or two different employers in the same field.
It’s also important to note that if you apply during the off-season, your lender will call your employer to do a verification of employment and confirm you’ll be rehired next year.
Finally, if you’re a seasonal employee who receives unemployment income when not working your seasonal job, you can qualify with that income. You just have to show a 2-year history of receiving both the seasonal income and the unemployment compensation.
What Type Of Seasonal Income Can’t Be Used For Mortgage Loan Qualification?
When it comes to mortgage qualification, the thing that’s going to matter the most is consistency. Mortgage lenders want to be able to have reasonable assurance that you are going to continue receiving that income. For that reason, having one regular employer is helpful rather than several jobs you do during one season of the year.
As an example, let’s say during the summer you work part-time for a landscaping service. You also worked part-time as a hot dog vendor on the street. In order to use both jobs for mortgage qualifying income, you have to work both jobs for at least the past two summers. If you only started working at the hot dog stand this past year, the work history isn’t long enough to use that income.
We hope this has helped clarify the process of qualifying for a home loan with seasonal income. If you’re ready to get started, you can apply online.
See What You Qualify For
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