Working in the mortgage business means you get a little more involved in your clients life then the typical financial transaction. Speaking for myself, that is an enjoyable part of being in the profession. Over the years I have met people as clients that have developed friendships due to these transactions.
When I started in the business as a loan officer, the trainers taught me that the application is the client’s story. I was shown how to create an application using a conversational story format instead of just asking the questions down the page. During that story development the income part of the story would often be the part we talked about the most. For example “Hey Bob, what are you doing for income these days” was my go-to question. From here the client would tell me about what they did, how long, and why they did it. Sometimes they would tell me that they just got a new job and that is why we were talking about a new mortgage for a nice upgrade on a house! The underwriting question that comes out from this change is…. Can I use this new income to qualify?
Using the new income to qualify, the short answer is YES it is possible~
This is the mortgage business, so what’s the catch? If you are broker or correspondent, more than likely you will NOT have all these options open to you. These rules are designed for direct sellers and their ability to hold onto the loan before selling to Fannie / Freddie.
First, let’s define that we are talking about which is employment offers and contracts (FNMA B3-3.1-09) and Income commencing after the note date (from a new job) ( FLMC 5303.2).
When you read these two sections you will find that Freddie allows a little more flexibility than Fannie Mae does. The second thing to consider is will your company (the originator) deliver to the agency (Fannie / Freddie) before or after your borrower gets their first paycheck at the new company. As a footnote this is where if your company is not a direct seller to the agencies you most likely will be limited to option one as I stated above.
Key facts for new income (know your rule differences between agencies!!!)
Both agencies offer two options, the first option is if the income will start soon after the closing (0-90 days). The second option is when the income starts 30 days or later. There are very large differences between the two agencies. To explain in full detail would be tough to do in this blog, so I want to refer you back to the guidelines I linked above, but here are some key bullet points:
- Option one will be easiest to qualify, but is limited to new income under 90 days after close
- If you need more than 90 days after close, Freddie will be your only option
- Transaction types (purchase / rate and term refi / cash out refi) are limited
- Subject premises use is limited to primary only UNLESS you are using FHLMC Option 2
- Only fixed pay can be used as future income no variable income types (OT, bonus, etc)
To wrap this up, yes new income can be used to qualify and this may be the difference to your borrower qualifying for that new home or not! BUT this is another shining example of understanding the guideline differences between Fannie and Freddie
This blog is provided by Blueprint we created IncomeXpert to make sure you get your borrowers income right EVERY TIME. Employed , self employed, grossing up income, military, and many more! We even have a fully functional free edition, come check us out at www.getblueprint.io for more details!