Inflation, especially in home prices and rents, keeps moving the bar higher for prospective home buyers and makes it difficult to save for the purchase.
Q: Can income from a second job/gig work help you qualify for a mortgage?
Brunker: Generally, the income from a second job or gig job can help a borrower qualify for a mortgage if income from both jobs can be documented and stability can be demonstrated. Typically, that means two years of continuity. For example, if a borrower has had both Job A and Job B for 2-plus years, the most important next step is to ensure they have the proper documentation to demonstrate that income. Generally, if income can be documented through traditional means (W2 pay stubs, federal tax returns, etc.) and a borrower is able to demonstrate stability with each job, a second job can be used to help a borrower qualify for a mortgage. However, every individual borrower’s situation is different. It’s important to get in touch with a trusted mortgage professional who can look at their employment situation and help guide them through the application process.
Konieczka: If you’ve been working a second job or multiple freelancing gigs for a long time, yes. Part-time employment, freelancing and even seasonal jobs are acceptable proofs of income when applying for a mortgage. However, you will need to show a two-year income history for each of these jobs if you want it to be used to qualify you on your mortgage application. Lenders will request W2s and income verifications from each employer to establish a two-year average income.
Essentially lenders are looking at three things: the consistency of the income, how long the income has been received by the borrower and the likelihood that the income will continue in the future. You should not go out and get a second job a month before applying for a mortgage and expect that it would be considered to qualify you. This could hurt your chance to obtain a mortgage. A second job in the short-term could be viewed as a risk to your primary job and thus a risk to paying those monthly mortgage payments.
Q: How long do you need to have had the second job for the income to be allowed in a mortgage calculation?
Konieczka: History is always the key when it comes to proof of income and two years is generally the standard. Income received for a shorter period may get considered if other positive factors reasonably offset it, but never less than 12 months and with appropriate documentation from the employer.
Q: Any advice on the best way to use your income from a second job? Is it better to pay down a debt, use for down payment and closing costs or to keep as an emergency fund?
Brunker: Deciding what to do with income — whether from a second job or not — depends greatly on the borrower’s individual financial situation. If the income from a second job makes up a substantial portion of the borrower’s total income and they have the necessary history of receipt, then it is probably best for the borrower to use that income to help qualify for the mortgage.
Konieczka: This is really going to depend on individual circumstances and how much extra money a person has in savings versus their amount of debt. If there is substantial debt, it is always best to chip away at that first, or even pay off a lump sum, as this can impact a borrower’s chance of even qualifying for a mortgage and securing a good interest rate. An individual’s credit score will factor in determining which mortgage loan product and interest rate the individual will qualify for. The amount of revolving debt impacts an individual’s credit score. I recommend never going beyond 25 percent of any card’s credit limit. The lower you can go, the better it will be for both your score and your overall financial health.
Next, everyone should have at least three to six months’ worth of expenses in an emergency fund. It may seem like a good idea to take a large amount of savings and use it for your down payment or closing costs instead, but what happens in a month or two if you lose your job or have a medical emergency? You could find yourself in a position where you can’t pay the mortgage. If you haven’t already, seek out a financial counselor at your local credit union to talk about your individual circumstances, along with high-interest savings and low-interest loan options. Also speak to a loan officer about different loan programs for first-time home buyers that require a minimal down payment.
Q: If you want to use the income from that second job for down payment funds, do you need to keep it separate from other funds or have any specific paper trail to show?
Brunker: No, as long as the borrower can demonstrate the presence of the sufficient down-payment funds in their bank accounts, typically, no further documentation is necessary.
Konieczka: A lender will ask for your bank statements to verify all the cash you need to close on your mortgage and will ask to verify any large deposits. It is very important to be organized and have your documents to show sources of any large cash added to your accounts.
Q: Any other comments about income from a second job for home buyers?
Brunker: First, it’s important for buyers to do their research to find a trusted lending partner that can add value to their application process by looking at their financial picture and making recommendations that are in their best interest based on their unique financial situations and goals. It is also important for buyers to consider the costs that come with purchasing a home as they establish their home-buying budget, in addition to the down payment and mortgage. These include the costs associated with the purchase of a home (attorney fees, inspections and appraisals) and the ongoing homeownership costs (taxes, utilities, homeowner association dues or unexpected repairs).
Konieczka: To summarize, having a second or third job can help you qualify for a mortgage. You need to demonstrate a two-year history of working all jobs simultaneously. Your mortgage lender will require your W2s and verifications from all employers for the previous two years plus consistent paystubs and will use a two-year average income to determine your monthly income to qualify you. What the lender is looking for is your ability to sustain multiple jobs at the same time and have consistent monthly income.
If you decide to purchase a home and your income is insufficient to qualify for a mortgage loan, we recommend creating a two-year plan. The two-year plan focuses on earning additional income via a second job. The money earned from the second job should be deposited into an account for the exclusive purpose of purchasing a home. You need to be disciplined not to withdraw from the account except for the purpose of purchasing a home. When you are ready to apply for a mortgage, you will have the income to qualify for financing and money for a down payment.
