In an improving economy, students find it easier to get hired post-graduation, and employees find it easier to find work in a new town. With mortgage guidelines easing, it's easier for these students and relocating workers to become homeowners. Lenders have changed the way they evaluate the "future, promised income" of an offer letter.
If you're a recent college, law school, business school, or medical school graduate, or a relocating W-2 employee; and you've accepted a new employer's job offer, you can use your expected job income on a mortgage application -- even if you've earned no prior income in the current year.
Offer Letters Are Acceptable Proof Of Income
The "recent graduate" / relocating mortgage program isn't altogether new. It's a program that's been around for years. However, as the economy faltered late last decade, mortgage lenders have denied access to it.
In short, because job offers are reversible, rescindable, and otherwise subject-to-change -- even after they've been signed by all parties -- lenders stopped accepting them proof of income for purposes of a mortgage application.
Furthermore, as lenders knew, a legitimate-looking job offer letter could be forged without much effort.
To protect against underwriting error and fraud, therefore, mortgage lenders chose to underwrite recent graduates and relocating households with the same income standards as for everyone else. It's a process that requires at least 30 days worth of pay stubs, though, and that meant that job offers were worthless as proof of income. You needed two full paystubs.
Not anymore. Lenders now accept signed offer letters as proof of income. It's good policy for workers, and for housing, too.
Official "Offer Letter Mortgage" Guidelines
Lenders have learned a lot since the housing market faltered last decade. Most notably, they've learned to better distinguish between acceptable risks and unacceptable risks. In today's lending environment, common sense can prevail, and it often does.
This wasn't the case even 12 months ago.
As a result, "offer letter income" is now admissible as proof of income. It doesn't matter if the offer letter income is the result of a new job or a pending pay raise, or even a relocation. Lenders are willing to make the loan.
To use "offer letter income", all that an applicant must do is to meet these 5 criteria :
- Provide a non-contingent offer letter, signed by the applicant and the new employer
- Provide evidence that the job start date is within 90 days of the mortgage closing date
- Provide evidence that the subject home will be a primary residence
- Provide evidence that the subject home is a detached single-family residence, townhome or condominium
- Sufficient reserves to pay mortgage payments plus real estate taxes and homeowners insurance during the gap between closing and the job start date, plus an additional 3 months of reserves
Here's a real-life example of how the reserves part of the Offer Letter Income program works.
Assume that a recent business school graduate took a new job that starts 2 months from today. It could be in-town, or across the country. So long as the graduate plans to move into the home; and the home is not a multi-unit; and there's enough money in the bank to cover 5 months of total housing payments, he/she can use the income from the offer letter on a mortgage application.
The Offer Letter Income program works for people expecting a raise at work, too. So long as the new salary starts within 90 days of closing and is supported in writing by the employers, the new income is usable.
Note that in all cases, however, a mortgage applicant's loan size is limited to the local conforming loan limit which is $417,000 in Tennessee.
The program does not require proof of graduation.
Get A Mortgage Rate Quote Today
If you're a recent law school graduate looking for your own home, or a MBA grad moving cross-country for work, you don't have to rent if you don't want to. Maybe you're moving with your family in-tow or maybe you're moving solo.
You can apply the income of your "future job" to get approved for a mortgage today. Mortgage rates are great and approvals are simple.
About the Author
Shawn Kaplan is an active, 50 state Licensed loan officer with Access National Mortgage. Email Shawn at skaplan@accessnational.com or call 615-426-3182.
Bonus: Click to get a free, no-obligation rate quote. I love to work with my readers!
