The Future Income Mortgage
Many people think mortgage qualifying involves evidence of current income to the tune of W2 forms and paystubs. While this is true in many cases (along with tax returns and verifications of employment), there are several other ways to qualify for mortgages. In recent months, alternative income methods have made a comeback. From bank statements to deposits, lenders are looking at alternative ways to qualify people. One qualifying income program that’s been here all along, but isn’t widely known is the future income mortgage. Future income is exactly as it sounds – income that is not currently hitting a borrower’s bank account, but is expected to arrive in the near future.
The future income mortgage is a huge benefit to relocating home buyers who are set to start a new job but don’t have income from their new position until after the move. It can also be a huge benefit to a homebuyer in a profession where work is seasonal or there are months with no income – when you think of a “teacher mortgage” for example, it can refer to a loan given to a teacher or professor with a contract in place where the income won’t actually start coming in until a school year begins. These are all examples of the Future Income Mortgage
Why aren’t these programs more widely advertised? Simply put, lenders don’t have much risk tolerance, and these are risk-laden mortgage loans. What if we fund a mortgage and the borrower changes their mind about their new job? What if the employer goes belly up or there’s a worker strike between loan funding & the start of income? When it comes to income, lenders want to see a history and a likelihood of continuance. With an expected income or “future income mortgage”, the history becomes a lesser indicator of future income, and the future income becomes more uncertain – what if the borrower decides they don’t like their $90,000/year engineering gig and decides to give it up for their minimum wage dream job? The lender could get stuck with the burden of several hundred thousand dollars on their books.
While lenders don’t love the risk, many lenders (Mason McDuffie is one of them) will gladly approve these loans for deserving borrowers. With our guidelines, income must begin coming in within 60 days of a loan funding, so a borrower could theoretically start looking for a home in June, move in July, and qualify using a future income mortgage beginning in late August or even September (a typical timeline for teacher loans).
So what do lenders require if there are no paystubs available? For one, the new employer will need to complete a verification of employment listing a start date, and that the employment is likely to continue. Another requirement is that a lender will need an executed offer letter or contract spelling out the start date and the income (if bonus income or commission is included, it cannot be used to qualify). Beyond that, lenders will often have the borrower send in a paystub once they finally do start coming in as a final confirmation that payday has arrived. For conventional loans, this pay stub is often needed before a loan is delivered to a final investor. Because of the documentation requirements, this type of loan is often referred to as a “Job offer letter mortgage” or a “future income mortgage”. This mortgage feature is a very important one for people relocating – finding a lender that will use future income to qualify is often a must to avoid a short term rental. Real estate agents that specialize in relocation find these programs invaluable for their clients. The expected income mortgage is also a wonderful tool for first time home buyers either finishing up or just recently out of school and ready to begin their career. With a job offer letter from their first employer, the possibility of home ownership is very real.
While the “future income” or “job offer letter” mortgage is not widely advertised, it’s a very important loan product that makes it possible for people to avoid short term rentals, multiple moves, and missing out on a dream home simply because income hasn’t started to roll in…yet. As a qualified home buyer, if you have expected income or a job offer letter, you can qualify for the same conventional or FHA mortgage programs as someone with years of experience on the same job. Same rates, same programs, same terms.
For more information on job offer letter mortgages and expected income loans, ask an expert today, or call 484.680.4852.