Lenders like to see consistent and reliable income when qualifying you for a VA loan. What if you work part-time, though? Will your part-time income be enough to get you a mortgage?
A History of Part-Time Income
The VA is strict about how long you must make your part-time income before the lender can use it for qualifying. It makes sense, since part-time income can be sporadic. What a lender needs to see is that you make the same income year over year.
Part-time income is different than salary income. Part-time income can vary so much. For example, you might work a lot of hours for a few months and then have much fewer hours the months following. This doesn’t provide the consistency and reliability that lenders need.
If you have a two-year history of the income, though, lenders can take a 2-year average of your income. This takes into account the highs and lows throughout the year and gives an average. This way lenders don’t qualify you for too much mortgage by basing your income on a period where you worked a lot.
Staying at the Same Job
A key factor in getting a lender to use your part-time income, though, is staying at the same job. We know this can be harder when you work part-time, but it’s important. It’s a part of that reliability. If you jump from job to job, there’s no consistency. Lenders want to know that you are reporting to the same employer that you have been year over year. This gives the lender peace of mind that the job will continue, as will the income to pay your mortgage.
You should watch out for times when you have decreasing income, though. If you suddenly get less hours or you just don’t have the time to work as much anymore, you may make less now than even your 2-year average. If this is the case, lenders will put more focus on your current earnings.
If they used your 2-year average, they might over-qualify you for a loan. If they give you a mortgage payment you can’t afford, it could put you in over your head and put the bank at risk of default. Instead, the lender may use your most recent six-month income to determine how much you can afford.
Of course, if the decrease is too much, the lender may not use your part-time income at all. They are under no obligation to do so and can do it at their own discretion.
Have Compensating Factors
If you are trying to boost your income by taking on a part-time job, you may need some compensating factors that convenience the lender that you are a good risk.
The best compensating factors to provide include:
- High credit score – A high credit score shows a lender that you are financially responsible. Lenders may be less apprehensive about giving you a loan using part-time income if your credit score is high.
- Assets – Lenders love it when borrowers have assets on hand. We are talking liquid assets, like checking, savings, stocks, and bonds. These assets can cover your mortgage should something happen to your income. They often make lenders more willing to provide you with a loan.
- Low debt ratio – Lenders also like to see that you aren’t in over your head in debt. If your debt ratio is lower than required, it could put you in a good position to get the loan.
It’s up to you to make your loan application look attractive. Remember that lenders are looking for reasons that you might default. Don’t give them a reason to think that you would. Make your part-time income as stable as possible and keep it for as long as you can before you apply for a loan. Adding in those compensating factors can be the icing on the cake that makes the lender want to give you the loan.Click to See the Latest Mortgage Rates»