Other Lending Options for first time home buyers?

Question

I have a house for sale where the interested buyers are a couple of months away from having the lender required pay-stubs. Both buyers are new college graduates, one with a masters degree with excellent credit, and both have signed employment contracts with the local school districts. All the conventional lenders say they qualify, but will not finance until pay-stubs are received, probably mid-September which is about 3.5 months away. Are there other options out there for new home buyers who are only a few months away from having all the technical 'rubber stamp' items a traditional lender requires?

Thanks in advance.

Mike from Baltimore

Thanks in advance.

Mike from Baltimore

Andrew Postell · Answer

@Mike Francis this might get a little complicated but I'll try my best to make this simple.  A conventional loan (Fannie Mae or Freddie Mac) will allow the loan to fund WITHOUT paystubs but there are some conditions to qualifying for it.  However, both Fannie/Freddie allow lenders to put extra rules on top of their rules; we call these "overlays". Overlays allow a bank to limit their risk if they wish.  So if they are working with a bank that has an overlay on the rules I am about to share, and they fit those rules to qualify without paystubs, then they would need to move to a different lender.  For the sake of time, I'm just listing the Fannie Mae rules:

In Section B3-3.1-09 of the Fannie Mae Selling Guide (page 366 to be exact) the rules to employment contracts are as follows:

Option 1 -- Loan Delivered After Borrower Starts Employment - this means that the lender "sells" it back to Fannie after the customer has started but the customer has not yet been on the job for a normal amount of time

The lender must obtain an executed copy of the borrower's offer or contract for future employment and anticipated income.  The lender must obtain a paystub from the borrower that includes sufficient information to support the income used to qualify the borrower based on the offer or contract.

Option 2 -- Loan Delivered Prior To Borrower Starting Employment - this means that the loan closes BEFORE they start employment.

This option is limited to loans that meet the following criteria:

The employment start date as shown on the employment offer or contract must be within 90 days of the loan closing.

The lender must document, in addition to the amount of reserves required by DU or for the transaction, one of the following:

**WHEW**

I hope that wasn't too much information.  This is why experience, knowledge, and working with a simple and flexible banks are important.  They are harder to find but there are lenders out there that will follow these guidelines.  If you can recommend something to them, then try smaller to mid-sized banks for best results.

Mike Francis · Answer

Thanks Andrew - very informative and very well explained. It sounds like the "overlay" is the hurdle to focus on, which might be overcome if we can find a lender open to Option 2.