Need a Job to Get a Mortgage? Maybe not

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Clients come to me from time to time needing a mortgage who are between jobs, or are at that place where they are not working and considering retirement.  Most are afraid that they can’t get a mortgage at all, but the truth is you don’t need a job to get a mortgage.  Why?  You only need income.

In fact, you don’t even need a job to get a mortgage at the best interest rates available.

Let’s explore how that might work.

Non-Traditional Income

First, let’s explore how you might have income if you don’t have a job.  Other sources of income, common and uncommon, include:

Social Security, or SSI:  Retired people know this very well, of course, but it turns out there are other ways in which people collect this income.  For instance, if you are on permanent disability, you might be collecting it.  Moreover, if someone you are dependent on (say a parent) or someone who is dependent on you (say, a child) is on it, you may be able to use their income to qualify if they are living in your household.

Pension income:  Like SSI, pension income is pretty common and not surprising.  We need to provide an award letter and bank statements to document that you are receiving the income.

IRA withdrawals:  If you are not yet receiving withdrawals from your IRAs, you can set them up and then we can count them.  We’ll need a letter from your IRA administrator confirming that withdrawals have been set up and – depending on the lender – evidence in the form of bank statements that document you have been receiving the withdrawal income for anywhere from one to six months.

You will also need to have enough money in your account to support withdrawals for at least five years with most lenders.

Trust fund income:  Some folks receive income from trust funds.  (Unfortunately, this isn’t me.)  If you do, then as long as we can document the income, we should be able to count the income to help you qualify for a conventional mortgage.  To do that, we would usually need a copy of the trust and bank statements documenting the receipt of the income each month for at least a couple of months.

Spousal or child support:  By law, you are not required to reveal income from child or spousal support.  For this reason, many folks decline to state it.  However, you can if you wish, and you would want to if you needed it to qualify for a mortgage.  To qualify for conventional financing, we would need to document that the income is likely to continue for at least three years.  A divorce decree and child support decree or agreement will usually cover this.

Dividend and interest income:  If you earn dividends or interest from your investment portfolio, we can use that income to help you qualify for a mortgage.  Most lenders will average the last two years of income as reported to the IRS, so we will need tax returns to use this income.

Asset-based income:  If you have substantial savings and investments aside from your restricted retirement accounts, but don’t have dividend and interest income on them, we can use those assets to impute income from them as if you were withdrawing money each month.

Fannie / Freddie rules on this are very conservative – they take your assets and divide it by the number of months that you will be paying back your loan.  This means you’ll need to have way more money in savings and investments than you are borrowing.  Lenders that plan to hold the loan in portfolio, however, will impute a rate of return and allow you to deplete the investments faster, and so require much lower balances.  Interest rates and fees on loans that are not sold to Fannie or Freddie may be higher, however.

Care-giver income:  Are you caring for a loved one?  Whether you are caring for a parent, child, spouse, or even someone not in your immediate family, there may be income available to compensate you for being available full time to take care of your loved one.  Perhaps you are already receiving this income.  Yes, we can count it!  We’ll need to document its source and its receipt, so documentation will probably look like an award letter or something similar, plus bank statements showing the money deposited.  The documentation will need to show it has a reasonable chance of recurring for at least three years, meaning it can’t have a defined end date.

Income from a private note:  Have you lent someone money and they’re paying it back?  Did you sell a house or a business and carry back a note?  As long as payments on the note will last for at least another three years, we can usually count that income towards qualifying for the mortgage.  We’ll need a copy of the note and bank statements showing that you are receiving the payments.

Adding it all up – you don’t need a job to get a mortgage

Many folks who are not currently working find that no one source of income from the above list will be enough all by itself; they’ll need to combine two or more to qualify for the mortgage they want.  For example:

One client had a small pension and SSI income from her late husband.  She had a fairly substantial IRA account, so we set up withdrawals to make up the difference and were able to get her a conventional mortgage of over $1 million!

Another client received trust income plus income from taking care of a loved one and managing a family trust, plus rental income.  She also had some liquid investment accounts which we could use for imputed asset-based income.  We combined all four sources of income to qualify her for a loan to consolidate two mortgages into one fixed-rate mortgage.

Another client had substantial liquid assets – but not enough to qualify strictly based on an asset-based loan.  We had him cash in one pension and add it to his existing accounts, and then also set up IRA withdrawals just enough to get him qualified for the mortgage he wanted.

Getting the best interest rate

There are many lenders out there who will make a loan to you without a job.  The question is – can they get you a conventional mortgage, at competitive interest rates?  All three of these clients got the same loan, interest rate and fees and costs that they would have gotten if they had been employed.

To be sure, all three of them had excellent credit and money in the bank, and that will always be the case.

But if you are between jobs and have been waiting to apply for a mortgage until you become employed again, take heart – you might have better luck than you thought.

Casey Fleming, Author The Loan Guide: How to Get the Best Possible Mortgage (On Amazon)

Mortgage Advisor, C2 FINANCIAL CORPORATION

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This article represents the opinions of Casey Fleming, and not necessarily those of C2 Financial Corp.  This analysis was prepared with the best information available at the time it was written.  Neither Casey Fleming, nor C2 Financial Corp., have any magical insider information about bond markets, real estate markets or mortgage markets that would make economic projections any more reliable than any other source.  No warranty is made that the outcome will reflect the projections in this article, and neither Casey Fleming nor C2 Financial Corp. are responsible for decisions that you make regarding your own choices about your real estate or mortgage or those of your clients.

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