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Tuesday, September 9, 2014

CAN YOU USE YOUR PART-TIME EARNINGS TO QUALIFY FOR A MORTGAGE OR REFINANCE?






If you supplement your income with part-time work, that income might not be considered if you are purchasing or refinancing a home.  According to syndicated columnist Kenneth R. Harney, income isn't always income.  In his Sept. 29, 2013 column, he asked:  If you make $42,000 from your regular full-time job and another $18,000 by working part time at a second job, isn't your gross income $60,000?  One federal agency, the Internal Revenue Service, will tell you that it is.  However, mortgage lenders, especially Fannie Mae, Freddie Mac and the Federal Housing Administration, will tell you that part-time income generally isn't "qualifying income" for mortgage purposes until it's been flowing for a couple of years.  Depending on your specific circumstances, however, the extra $18,000 could be considered if you can document that you've been receiving the extra money steadily for two years and the pay is likely to continue.  Harney's column goes on to state:

The problem can be especially severe for borrowers with moderate incomes who have solid credit histories and have taken on second jobs to support their families.  Robert Montalbo, a loan officer in San Antonio,Texas, with Premier Nationwide Lending, a mortgage-banking firm, says he sees many creditworthy applicants who 'get a (part-time) second job to make ends meet' and who simply want a piece of the American dream - to buy a home of their own.  'Even if they can show they've worked at that part-time job for 16 months straight, I may have to turn them down,' Montalbo said.

Harney tells the story of a branch manager with the Mortgage Network in Danvers, Massachusetts who recounted an experience over a year ago.  The manager earned $96,000 a year.  He had been self-employed as a certified public accountant for 12 years but had to close his business because of a heart condition.  However, two of the CPA's previous clients persuaded him to accept part-time positions for their firms.  He received regular salaries from both companies but had worked for only one of them for more than two years.  As a result, only the salary from that company qualified as income for mortgage application purposes; the earnings from the other were deemed ineligible by underwriters.  The branch manager at the mortgage company had to deny the CPA a mortgage because his second job was not on the books for two years.  He had to abide by the guidelines, in this particular case, Fannie Mae's rules.

Just another constraint to the recovery of the housing market.  Statistically speaking, 7.9 million Americans were employed part-time "for economic reasons" in August 2013 - 4.8 million worked part-time because of "slack work or business conditions," 2.7 million "could only find part-time work" - and 19.3 million worked part time for "noneconomic reasons"   The proportion of jobs that are part time has been climbing and is now at 20 percent, up from 17 percent shortly before the recession (which official began September 2008).  The figures could be higher now because of businesses seeking to avoid paying insurance premiums for full-time employees, especially since the passage of the Affordable Care Act.

Harney states:  The two-year rule for counting part-time income has been an industry standard for years, and was recently incorporated into regulations adopted by the Consumer Financial Protection Bureau.  I say, standard practice is not a law or regulation that has been formally adopted and it doesn't have to be that way.  But because homeowners - or the general public - have no lobbying money or power, they have to tolerate some rules that are arbitrary and not in favor of the mortgage applicant.

 
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Source:  The Seattle Times, Sept. 29, 2013