Mortgage lenders usually check pay stubs from your current job to see whether you can afford a new home loan. But what if you’re between jobs or just starting out in your career?
An offer letter mortgage may be the answer. This type of loan uses your new job offer as proof of income. Eligible buyers can get approved on an offer letter alone without having the two-year job history required for most home loans.
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An offer letter mortgage is just like any other home loan. But instead of checking your current employment to measure income, underwriters rely on your past income or education and potential for future earnings. Those future earnings are reflected in your new employment contract.
An offer letter mortgage can be a great solution for recent grads who have a high earning potential but no work history, such as new doctors and lawyers. They can also help professionals who are moving upward in their careers.
A job offer gives your lender an alternative way to measure income. But your employment offer won’t affect other aspects of loan underwriting.
You still need to meet the lender and loan program’s requirements for minimum credit score, down payment amount, and monthly debt ratio. These factors affect your eligibility, interest rate, and maximum loan size.
Not just any job offer will satisfy your lender’s employment and income requirements. To qualify based on an offer letter, you typically need to be in a position with good job security and reliable earning potential.
Good candidates for an offer letter loan include:
In short, lenders need to see that you’ll earn a steady and reliable income in your new position.
To satisfy your loan officer and keep the application process on track, make sure your offer letter:
Make sure your new employer sends a job offer letter that meets these requirements. Lenders will reject a vague or open-ended offer letter. And your lender may have its own specific requirements, so ask your loan officer for details.
To many lenders, even the most promising new job may need more support.
For example, underwriters have to make sure you’re capable of making monthly mortgage payments during the time between loan closing and your first paycheck. So your lender may also ask for:
A signed job offer can provide proof of income, but your mortgage application will also depend on your credit score, debt load, and down payment size.
Most major loan types will accept a signed job offer as proof of income, as long as the job and offer letter meet requirements outlined above.
Most homeowners get conventional loans which are regulated by Fannie Mae and Freddie Mac. Both Freddie and Fannie will allow lenders to consider a signed job offer letter as proof of income.
You will need three to six months of cash reserves in the bank to get approved. You’ll also need to meet other loan requirements. For most lenders this means a credit score of at least 620 and a down payment of at least 3 percent. Although lenders may set higher standards for offer letter mortgages.
Freddie Mac can also allow a cash-out refinance with loan approval based partly on a job offer.
Government-insured loans from the FHA, USDA, and VA will also allow offer letter mortgages.
Most private lenders offer FHA and VA loans. USDA-guaranteed loans are pretty easy to find, too.
FHA loans can extend competitive mortgage rates to buyers with lower credit scores and higher debt loads. Typical FHA lenders require a credit score of 580 and a minimum down payment of 3.5 percent.
USDA and VA loans won’t work for everyone. USDA loans help moderate-income buyers in rural and some suburban areas. VA loans are a benefit for military members, veterans, and surviving spouses.
VA and USDA loans require no money down. USDA lenders look for credit scores of 640 and higher. Many VA lenders require credit scores of 620 but some go as low as 580.
Here’s a real-life example of how the offer letter income program might work.
Assume a recent business school graduate takes a new job that starts two months from today. It could be in town or across the country.
So long as the graduate plans to move into the home, the home is not a multi-unit building, and there’s enough money in the bank to cover three months of total housing payments, they can use the income from their offer letter on a mortgage application.
The program can work for people expecting a raise, too.
If their new salary starts within 90 days of closing, and is supported in writing by the employer, the new income is usable for purposes of a mortgage.
Note that in all cases, a mortgage applicant’s loan size is limited to the local conforming loan limit. In most areas, the single-family loan limit is $[current-loan_limits]. In high-cost areas such as New York City and San Francisco, that amount is capped at $ .
An offer letter mortgage does not typically require proof of graduation. The signed job letter is proof enough.
A signed job offer letter can help borrowers get loan approval while they’re between jobs. These loans can also help borrowers who haven’t started their new job yet. But a borrower who has been in the same job, or in the same profession, for two consecutive years won’t need an offer letter. Instead, pay stubs and W2s can provide proof of income for a mortgage loan.
Can I get a mortgage with three months of employment?Yes, it is possible to get mortgage approval with only three months of employment, especially if you worked in the same field before starting your current job. A signed employment contract can strengthen your mortgage application.
Do mortgage companies contact your employer?Mortgage companies typically contact your employer to verify the information you provide about your income and work history.
Do I need tax returns to get a mortgage loan?Self-employed borrowers will need to submit tax returns from the past two years to show their income. Borrowers who earn income from an employer can provide W2 forms or pay stubs.
If you’re a recent graduate or someone starting a new job in the same field, you might not have the standard two-year work history required for a mortgage. But lenders can often use an offer letter to verify your income and help approve you for a home loan.
Connect with lenders or a mortgage broker to check your eligibility and compare loan offers.
Authored By: Dan Green The Mortgage Reports contributorDan Green is an expert on topics of money and mortgage. With over 15 years writing for a consumer audience on personal finance topics, Dan has been featured in The Washington Post, MarketWatch, Bloomberg, and others.