How to Buy a House on Gig Income
Q: Can income from a second job/gig work help you qualify for a mortgage?
Brunker: Generally, income from a second job or on-demand work can help a borrower qualify for a mortgage if income from both jobs can be documented and stability can be demonstrated. Typically, this means two years of continuity. For example, if a borrower has had both Job A and Job B for more than 2 years, the next most important step is to make sure they have the proper documentation to prove that income. Generally, if income can be documented through traditional means (W2 pay stubs, federal tax returns, etc.) and a borrower is able to demonstrate stability in each job, a second job can be used to help a borrower qualify for a mortgage loan. However, each borrower’s situation is different. It is important to get in touch with a trusted mortgage advisor who can review their employment status and guide them through the application process.
Konieczka: If you have had a second job or several freelance gigs for a long time, yes. Part-time jobs, freelancers, and even seasonal jobs are acceptable proof of income when applying for a mortgage. However, you will need to show a two-year income history for each of these jobs if you want it to be used to qualify on your mortgage application. Lenders will request W2s and income verifications from each employer to establish a two-year average income.
Essentially, lenders look at three things: the regularity of the income, the length of time the income has been received by the borrower, and the likelihood that the income will continue in the future. You shouldn’t go out and get a second job a month before applying for a mortgage and expect that to be considered qualifying. This could hurt your chances of getting a mortgage. A second, short-term job could be seen as a risk to your main job and therefore a risk to paying those monthly mortgage payments.
Q: How long must you have worked in the second job for the income to be taken into account in the calculation of a mortgage loan?
Konieczka: History is always key when it comes to proof of income and two years is usually the norm. Earnings received for a shorter period may be taken into account if other positive factors reasonably compensate for it, but never less than 12 months and with the appropriate documentation from the employer.
Q: Advice on the best way to use the income from a second job? Is it better to pay off debt, use it for down payment and closing costs, or keep as an emergency fund?
Brunker: Deciding what to do with the income — whether it’s a second job or not — greatly depends on the borrower’s individual financial situation. If the income from a second job is a significant portion of the borrower’s total income and they have the necessary receipt history, it is probably best for the borrower to use this income to qualify for the mortgage.
Konieczka: It’s really going to depend on individual circumstances and how much extra money a person has in savings compared to how much they owe. If there is significant debt, it is always best to reduce it first, or even pay off a lump sum, as this can affect a borrower’s chances of qualifying for a mortgage and getting paid. get a good interest rate. An individual’s credit score will be considered in determining the mortgage product and interest rate for which the individual will qualify. The amount of revolving debt has an impact on an individual’s credit rating. I recommend never going over 25% of a card’s credit limit. The lower you can go, the better it will be for your score and your overall financial health.
Next, everyone should have at least three to six months worth of expenses in an emergency fund. It might seem like a good idea to take a large amount of savings and use it for your down payment or closing costs, but what happens in a month or two if you lose your job or have an emergency. medical? You could find yourself in a situation where you cannot pay the mortgage. If you haven’t already, talk to a financial advisor from your local credit union about your personal situation, as well as high-interest savings and low-interest loan options. Also talk to a loan officer about different loan programs for first-time home buyers that require a minimum down payment.
Q: If you want to use the income from this second job for down payment funds, do you need to separate it from other funds or have a specific paper trail to show?
Brunker: No, as long as the borrower can demonstrate the presence of a sufficient deposit in their bank accounts, generally no further documentation is required.
Konieczka: A lender will ask you for your bank statements to verify all the money you need to close your mortgage and will ask you to verify any large deposits. It is very important to be organized and have your documents to show the sources of any large sums of money added to your accounts.
Q: Do you have any other comments on second job income for homebuyers?
Brunker: First, it is important that buyers do their research to find a trusted lending partner who can add value to their application process by reviewing their financial situation and making recommendations that are in their best interests. based on their unique circumstances and financial goals. It’s also important for buyers to consider the costs associated with buying a home when budgeting for the purchase, in addition to the down payment and mortgage. These include costs associated with buying a home (attorney fees, inspections, and appraisals) and ongoing property costs (taxes, utilities, homeowners association dues, or unscheduled repairs).
Konieczka: To sum up, having a second or third job can help you qualify for a mortgage. You must demonstrate a two-year history of working all jobs simultaneously. Your mortgage lender will require your W2s and verifications from all employers for the previous two years as well as consistent pay stubs and will use a two-year average income to determine your monthly income in order to qualify. What the lender is looking for is your ability to maintain several jobs at the same time and to have a constant monthly income.
If you decide to buy a home and your income is insufficient to qualify for a mortgage, we recommend that you create a two-year plan. The two-year plan aims to earn extra income through a second job. The money earned from the second job should be deposited in an account for the sole purpose of buying a house. You must be disciplined not to withdraw from the account except for the purpose of buying a house. When you’re ready to apply for a mortgage, you’ll have the income to qualify for financing and money for a down payment.