Can I Get A Mortgage Without A Job?

Can I Get a Mortgage Without a Job?

A federal regulation known as the ability-to-pay rule, enacted by the Dodd-Frank Act and expanded by the Consumer Financial Protection Bureau, requires mortgage lenders to attempt to verify that you can repay your loan. This can entail examination of your income, debts and assets.

Loan applicants are often asked to provide pay stubs or tax returns as evidence of employment income sufficient to cover the payments on the loan. If you lack so-called W-2 income (named after the form the IRS uses to report wage and salary income), you can still get approved for a mortgage, but you'll need to document alternate income sources.

What Other Factors Do Mortgage Lenders Look At?

Income is not the only factor lenders look at when determining loan eligibility. Here are some other considerations.

Credit Report and Score

Mortgage lenders typically check your credit report at one or more of the three national credit bureaus (Experian, TransUnion or Equifax), and also request a credit score based on those reports. Lenders issuing conforming loans typically require a FICO^® Score^Θ or VantageScore^® credit score of 620 or higher.

Debt-to-Income Ratio

Debt-to-income ratio (DTI) is the percentage of your monthly pretax income you use to cover debts such as loans and credit card bills. Lenders use DTI as an indicator of how much money you have available to put toward payment on a new loan after you've met your current financial obligations.

Non-Employment Income

If you have income from Social Security, a pension, investments, a trust fund or other sources other than employment, those funds can and will be considered by lenders evaluating your ability to repay your loan.

Assets

If you have substantial assets that could be sold if necessary in order to cover your loan obligation, lenders may take them into consideration when determining your loan eligibility.

How to Get a Mortgage Without a Job

Here are some steps to consider if you are seeking a mortgage without conventional employment.

Show Proof Of Non-Employment Income

If you have sources of regular funds unrelated to full-time employment that you can document using tax returns or other evidence, lenders will consider them when determining loan eligibility. Unemployment benefits do not qualify, but other sources such as the following do:

• Self-employment income, including freelance or contractor income
• Alimony payments
• Disability benefits
• Income-generating investments, such as investment real estate or stocks that generate passive income
• Social Security or pension income
• Proceeds from a lifetime income annuity or trust fund

Document Cash Reserves

If you are self-employed or otherwise lack a steady income source, your lender may want evidence of savings in cash or assets that can be converted to cash quickly if needed,The exact amount required varies by lender and the specifics of your loan, but sums adequate to cover six months' worth of loan payments aren't uncommon.Acceptable cash reserves include:

• Funds in checking and savings accounts
• Certificates of deposit
• Retirement account funds that are fully vested and that you can access without penalty
• Investments in stocks, bonds and mutual funds that are publicly traded

Apply With a Cosigner

For individuals with limited or sporadic income, securing a cosigner can increase likelihood of mortgage approval. In the event you're unable to make loan payments, the cosigner agrees to cover them on your behalf. Ideally this individual will be someone with excellent credit. As a practical matter, it must be someone who trusts you to keep up with your payments.

If it proves difficult to find a cosigner, you might also consider recruiting a co-borrower—someone who shares payment responsibility but also may have an ownership stake in the financed home.

Frequently Asked Questions

The Bottom Line

Earnings from traditional employment are not the only income source lenders recognize when assessing your ability to repay a mortgage loan. Lenders may also consider alternative income streams, substantial cash savings and other assets you can sell if needed to cover your loan. They'll also look at your debts and check your credit, so tracking your credit report and FICO^® Score for free from Experian can help you know where you stand.