Hello everyone in BP land, I hope you're well.
Part one of my real estate investing plan is to get an FHA loan for a house hack. There's a large speed bump on my road there, however, because my work has not been stable during this year (business closed, then I got a summer job that just ended, and now I'm looking for employment again). I know that for an FHA loan the lender wants to see 2 years worth of employment.
I have a few questions about what they want to see for employment as well as many other things pertaining to an FHA or VA loan and I don't want to bog down the forums here with everything I want to know. I'm going to go to my credit union and talk to their loan officer to get as many answers as I can, but I'm still at the point where I don't know what I don't know, so I'm hoping that some of you can provide me with questions or situations to ask the lender about that I may not know to ask.
I appreciate your help,
@Cosette Trantow Going to a small local credit union is a great idea as they are more likely to give out loans versus large firms. By explaining your situation with past job experience you are more likely to get the loan you are looking for. Below are 5 questions to consider asking when meeting with a loan officer.
1. What interest rate and length of term options do they have to offer.
2. Do they offer fixed and variable interest rates. (both options are likely)
3. Are balloon payments required.
4. How fast can the bank close on a deal.
5. If you have an LLC, will the bank write out loans under your LLC business.
Hope that helps.
Best of Luck!
FHA will allow job gaps with a letter of explanation. If you start a new salaried job, the bank will use your new salary to qualify. If you were out of work for over 6 months, you will need to be at your new job for at least 6 months. Also, unless you are a perfect borrower, I wouldn’t go to a bank or a credit union. I recommend working with a mortgage bank. Mortgage banks socialize in only mortgages and have a bit more flexibility. I would be happy to help or at least point you in the right direction.
@Michael Pearse Thank you for the great response. I’ll definitely put those questions in my list.
This is a copy and paste from the HUD underwriting manual:
To be eligible for a mortgage, FHA does not require a minimum length of time that a borrower must have held a position of employment. However, the lender must verify the borrower's employment for the most recent two full years, and the borrower must
- explain any gaps in employment that span one or more months, and
- indicate if he/she was in school or the military during the most recent two full years, providing evidence supporting this claim, such as
- college transcripts, or
- discharge papers.
Allowances can be made for seasonal employment, typical for the building trades and agriculture, if documented by the lender.
When analyzing the probability of continued employment, the lender must examine
- the borrower’s past employment record
- qualifications for the position
- previous training and education, and
- the employer’s confirmation of continued employment.
The underwriter should favorably consider a borrower for a mortgage if he/she changes jobs frequently within the same line of work, but continues to advance in income or benefits. In this analysis, income stability takes precedence over job stability. 4155.1 4.D.1.d Borrowers Returning to Work After Extended Absences A borrower’s income may be considered effective and stable when recently returning to work after an extended absence if he/she
- is employed in the current job for six months or longer, and
- can document a two year work history prior to an absence from employment using
- traditional employment verification, and/or
- copies of W-2 forms or pay stubs.
Note: An acceptable employment situation includes an individual who took several years off from employment to raise children, then returned to the workforce.
Wow, I’m amazed at the thoughtful and informative replies. Thank you. Knowing that I can explain my bouts of unemployment makes me feel so much better.
@Art Shalomov I will definitely look into a mortgage bank. I didn’t even know there was such a thing so thank you.
@DeWitt Gibson I appreciate being able to see that information direct from the manual. I’m one of those people who likes to see the rules and regulations in writing. Maybe I got that from the military.
@Cosette Trantow I work for a mortgage bank (All Western Mortgage). My office is in Scottsdale. Let me know if I can help. Thanks.
I appreciate that @Art Shalomov , thank you. I still have a little while until I save up the down payment and educate myself yet and I’ll take all the help I can get in order to get through my first deal.