Mortgage Income and Job Questions, Answered

Can I get a mortgage with overtime income? How long a history do lenders want?

Yes, overtime can count if it has a steady history and is likely to continue. Lenders usually want about two years.

Fannie Mae recommends a two-year history but allows as little as 12 months when other positive factors offset the shorter history. FHA looks for two years and can consider a shorter period if the lender documents support for it. VA generally wants about two years. Lenders usually average overtime over time. If it has been falling, Fannie Mae requires the income to have stabilized or it cannot be used. Common documents include your most recent pay stub and two years of W-2s, or a written employment verification.

Sources: B3-3.3-02, Bonus, Commission, Overtime, and Tip Income, Fannie Mae Selling Guide; FHA Single Family Housing Policy Handbook 4000.1, HUD; 38 CFR 36.4340, Underwriting standards, eCFR

I'm a first-time buyer with less than two years at my job. What counts?

Time at your current job is not the same as your two-year work history. Lenders usually want to see a reliable two-year pattern, and that can include prior jobs, school, or military service.

FHA requires a two-year employment history and accepts proof of school or military service for that period. VA requires a two-year history covering prior employment, schooling, or training if you have been with your employer less than two years, and any unemployment must be explained. Fannie Mae looks for a reliable pattern over the most recent two years, and a shorter history may work with positive factors that offset it. W-2s, transcripts, and employment verifications are common proof.

Sources: B3-3.2-02, Standards for Employment-Related Income, Fannie Mae Selling Guide; FHA Single Family Housing Policy Handbook 4000.1, HUD; 38 CFR 36.4340, Underwriting standards, eCFR

Does child support count as income, and does paying it count as debt?

Yes, child support you receive can count as income if you choose to disclose it and it is documented and expected to continue. Child support you pay generally counts as a debt.

To use it as income, Fannie Mae wants proof of the amount and terms, six months of receipts, and at least three years of expected payments. FHA wants a decree or order, three months of receipts for court-ordered support, and three years of expected continuance. VA wants verified payments that are likely to continue for at least three years from closing. You do not have to disclose it. If you pay support, Fannie Mae counts it when payments run more than ten months, and FHA treats it as a recurring debt and checks pay stubs for garnishments.

Sources: B3-3.4-02, Alimony, Child Support, Equalization Payments, or Separate Maintenance, Fannie Mae Selling Guide; B3-6-05, Monthly Debt Obligations, Fannie Mae Selling Guide; FHA Single Family Housing Policy Handbook 4000.1, HUD; 38 CFR 36.4340, Underwriting standards, eCFR

Does disability or Social Security income count for a mortgage?

Yes, both can count as income if you document them. In most programs, your award letter and proof of current receipt are the key papers.

On conventional loans, Social Security retirement or disability on your own work record usually needs no proof it will continue unless the lender has reason to doubt it. Benefits on another person's record, and SSI, generally must be expected to last at least three years. FHA will not count income that expires within three years. FHA lenders cannot ask about your medical condition, and a pending re-evaluation of benefits is not a reason to treat them as ending. Nontaxable benefits may be grossed up on some loans.

Sources: B3-3.4-15, Social Security Income, Fannie Mae Selling Guide; B3-3.4-09, Long-term Disability Income, Fannie Mae Selling Guide; FHA Single Family Housing Policy Handbook 4000.1, HUD; 38 CFR 36.4340, Underwriting standards, eCFR

I just changed jobs. Can I still buy a home?

Yes, a recent job change does not automatically stop you from buying. Lenders look at whether your income is stable and likely to continue, and whether your overall two-year history holds up.

Expect a lender to verify your new job and usually your past two years of work. FHA lenders look harder if you changed employers more than three times in the past 12 months or changed lines of work. Fannie Mae may allow a loan on a signed, non-contingent offer letter before you start, within set limits on start date, pay type, and reserves. Lenders also reverify employment shortly before closing, so a job change during the process can change the file.

Sources: B3-3.3-03, Employment Offers or Contracts, Fannie Mae Selling Guide; B3-3.2-02, Standards for Employment-Related Income, Fannie Mae Selling Guide; FHA Single Family Housing Policy Handbook 4000.1, HUD

How do lenders count self-employed income?

Lenders usually qualify self-employed borrowers on a two-year history of income after business expenses, not gross sales. Your tax returns are the main proof.

Expect to provide two years of signed personal returns, and often business returns, with all schedules. FHA can consider one to two years only if you previously worked two years in the same or a related field. Fannie Mae may accept less than two years with 12 months on returns and prior income at a similar level. Large write-offs can shrink qualifying income because lenders start from net profit, though some items, such as depreciation, can be added back. VA also generally wants two years in business. Check with a tax professional about how you file.

Sources: B3-3.5-01, Underwriting Factors and Documentation for a Self-Employed Borrower, Fannie Mae Selling Guide; B3-3.6-03, Income or Loss Reported on IRS Form 1040, Schedule C, Fannie Mae Selling Guide; FHA Single Family Housing Policy Handbook 4000.1, HUD; 38 CFR 36.4340, Underwriting standards, eCFR

Does part-time or second-job income count?

Yes, part-time or second-job income can count when it has a steady history and is likely to continue. Lenders usually want about two years.

FHA looks for two years of uninterrupted part-time work and averages the income. Fannie Mae recommends a two-year history for each income source but may accept 12 months with positive factors that offset the shorter history. VA generally wants about two years for it to count as primary income, though 12 months can offset some shorter-term debts. If you started the job recently, a lender may not be able to use that income yet.

Sources: B3-3.2-02, Standards for Employment-Related Income, Fannie Mae Selling Guide; FHA Single Family Housing Policy Handbook 4000.1, HUD; 38 CFR 36.4340, Underwriting standards, eCFR

Why does my spouse's information matter in Texas if they are not on the loan?

Because Texas is a community property state, some loan programs require your lender to look at your spouse's debts even when your spouse is not a borrower. It depends on the program.

In Texas, your spouse generally has to sign the lien on a homestead even if your spouse is not on the loan, whatever the loan program. For legal questions about your situation, talk to a Texas attorney.

• FHA: The spouse's debts count in your ratios unless state law excludes them, and the lender pulls the spouse's credit report for that. The spouse's credit history itself is not a reason to deny the loan.
• USDA: The spouse's debts count unless state law excludes them, and a credit report is required.
• VA: In community property states, the lender generally must pull a credit report on your spouse and count your spouse's debts, even if your spouse is not on the loan. Your spouse's weak credit does not by itself make you a poor risk.
• Conventional: Ask your lender how it handles a non-borrowing spouse in Texas.

Sources: FHA Single Family Housing Policy Handbook 4000.1, HUD; 38 CFR 36.4340, Underwriting standards, eCFR; 7 CFR 3555.151, Eligibility requirements, eCFR; IRM 25.18.1, Basic Principles of Community Property Law, IRS

What is debt-to-income and what counts as a debt?

Debt-to-income is your total monthly debt payments divided by your gross monthly income, before taxes. Lenders use it to judge whether you can carry the new payment, and limits vary by lender and loan program.

The new housing payment counts, including taxes, insurance, and association dues. So do car loans, student loans, credit card payments, leases, alimony, child support, and other recurring obligations. On Fannie Mae loans, installment debts with ten or fewer payments left are usually left out unless they significantly affect your ability to pay, and lease payments count no matter how soon they end. VA treats debts of ten months or more as long-term and also uses a residual income test.

Sources: What is a debt-to-income ratio?, CFPB; B3-6-02, Debt-to-Income Ratios, Fannie Mae Selling Guide; B3-6-05, Monthly Debt Obligations, Fannie Mae Selling Guide; 38 CFR 36.4340, Underwriting standards, eCFR