As more people enter the "gig" work economy to make ends meet with rising inflation, work multiple jobs as a result of have their hours per week reduced, or an employer switched full time job to become a part time job, this guide will show you how mortgage lenders and mortgage underwriters calculate gross monthly income and debt to income ratios for the home loan approval process. Through tradtional mortgage underwriting guidelines for a mortgage loan, your lender wants to verify that you have stable income through a full time job (or part time job), and you can show at least two years in the same line of work.
The COVID-19 pandemic brought unparalleled challenges to our global workforce, company culture, and causing disruptions in industries and transforming the way we work. While many aspects of the pandemic have been arduous, there is a silver lining that often goes unnoticed – the remarkable opportunities that have emerged for gig employees and part time employees. As the landscape of work shifts, these individuals are finding novel paths to success, empowered by the changing dynamics of the modern work environment.
The pandemic forced companies to reassess their business models and operational strategies, plus it has also forced mortgage lenders and mortgage underwriters to recognize the validity of income received as both a part time employee and a full time employee. This led to an increased demand for flexibility and adaptability, traits that gig employees and part-time workers inherently possess. As businesses strive to navigate uncertainty, they are turning to agile workers who can swiftly pivot to meet changing demands. The surge in remote work, online platforms, and the need for specialized skills has opened doors for gig employees to showcase their unique talents and for part-time workers to contribute their expertise on a flexible basis.
In the realm of mortgage underwriting, the distinction between full-time and part-time employment holds significant implications for both lenders and borrowers. The Fair Labor Standards Act does not define a specific amount of time for "full time hours" versus "part time hours," but it does enforce items such as minimum wage and mandatory overtime if an employee works more than 40 hours per week. Mortgage underwriting involves the assessment of a borrower's financial capacity to determine their eligibility for a mortgage loan. Employment status is a crucial factor in this evaluation, as it directly impacts a borrower's ability to make consistent mortgage payments. Here's a breakdown of the differences between full-time and part-time employment in the context of mortgage underwriting:
During the early stages of the COVID-19 Pandemic, many borrowers may have been switched from full a full time job to become classified as part time employees, which could have resulted in lower monthly gross income, fewer hours per week, and a reduction in benefits. More importantly, when an employer switches the classification from a "full time" status to "part time", the potential borrower would also lose the coveted two year history, or average income of the past two years. Part time employees with multiple jobs or a significant portion of their salary comes from part time income, an underwriter may have a difficult time calculating the gross monthly income to determine the debt to income ratios.
Full-Time: Full-time employment typically indicates a stable source of income. Borrowers with full-time jobs are more likely to demonstrate consistent earnings, enhancing their ability to meet mortgage payment obligations. The hours per week, but shifting trends in the labor force, seasonal employment, and how many hours worked within a specifc industry, all affect how a lender may determine your gross monthly income to calculate your debt to income ratios.
Part-Time: Part time employees or borrowers with more than one part time job, on the other hand, may be associated with variable income. Lenders might view part-time work as less stable, which could impact a borrower's qualification for a mortgage. The irregularity of income from part-time work can raise concerns about the borrower's ability to sustain mortgage payments.
The pandemic expedited the digital transformation across industries, driving an unprecedented reliance on technology. This shift has spawned a multitude of opportunities for gig employees and part-time workers who specialize in digital skills. Remote work, virtual collaboration tools, e-commerce platforms, and digital marketing have become essential components of the business landscape. Those who possess digital prowess are finding themselves in high demand, as companies aim to establish and enhance their online presence.
The pandemic-induced economic downturn prompted many to explore alternative income sources beyond their traditional jobs. This catalyzed the growth of entrepreneurial ventures and side hustles. Gig employees and part-time workers often have the flexibility to dedicate time to their passion projects or innovative business ideas. As the world became more receptive to online marketplaces, virtual services, and creative ventures, these individuals found themselves uniquely positioned to tap into emerging markets and cater to evolving consumer preferences.
The geographic limitations of work were drastically altered by the pandemic. Remote work became the norm, erasing the boundaries that once confined employment opportunities to a specific location. This has presented a vast advantage for gig employees and part-time workers who can now collaborate with clients and employers from around the world. As long as they have the necessary skills and tools, they can participate in projects that transcend geographic barriers and offer a truly global reach.
The pandemic has prompted a reimagining of traditional work models. Employers are increasingly recognizing the value of a diverse workforce that includes full-time, part-time, and gig employees. This shift has led to a broader range of opportunities for those who seek non-traditional work arrangements. From short-term projects to part-time roles with specialized responsibilities, the modern work landscape accommodates a variety of preferences and skills.
While the pandemic's impact on the workforce cannot be underestimated, the stories of gig employees and part time employees triumphing in these challenging times deserve recognition. Their ability to seize emerging opportunities, adapt to changes, and leverage their skills has showcased their resilience and ingenuity. The pandemic has highlighted the potential for success outside the confines of conventional employment, and as the world continues to evolve, the gig economy and part-time work are positioned to play an increasingly vital role in shaping the future of work.
Steady Employment and Income:
FHA loan applicants are generally required to demonstrate a steady employment history and reliable income. The FHA typically prefers borrowers who have been in the same line of work for at least two years, although there are exceptions. The goal is to ensure that the borrower's income is consistent and predictable, reducing the risk of default on the mortgage.
Changing Jobs within the Same Line of Work:
If a borrower has changed jobs but remains in the same line of work, the FHA generally considers this acceptable as long as certain criteria are met:
While the FHA prefers a steady employment history, it also understands that life events can sometimes lead to gaps in employment. If a borrower has experienced gaps, the FHA guidelines allow for consideration if the following conditions are met:
The FHA acknowledges that certain professions, such as seasonal employment or temporary work, might not adhere to the two-year requirement. In such cases, the lender has discretion to assess the borrower's income stability and capacity to repay based on the unique circumstances of their employment.
Documentation Requirements:
When applying for an FHA loan, borrowers need to provide documentation to substantiate their employment and income, including:
While both full-time and part-time employment are considered in mortgage underwriting, full-time employment tends to offer more stability and reliability in terms of income. However, borrowers with part-time employment can still qualify for mortgage loans if they can demonstrate consistent income and meet the lender's criteria. The key for borrowers is to provide comprehensive documentation that showcases their financial stability and ability to handle mortgage payments, regardless of their em