Can you qualify for a mortgage if you were recently unemployed?

August 04th, 2010

With the Labor Department citing 14.6 million unemployed in June there are many homeowners who have been without a job in the past year, or more. With mortgage rates low, homeowners are looking at mortgage refinances to lower their monthly mortgage payment. However, many have been unemployed for part of the last year or two and wonder if they can qualify for a new mortgage. If you have been off work and have gaps in employment in the recent past, and even collected unemployment insurance, go ahead and use that refinance calculator. Just because you have been unemployed does not automatically make you ineligible to refinance your home.

Job history

Traditional underwriting guidelines require a two-year history of employment. It is acceptable in the guidelines to have gaps in employment, as long as the two years can be verified. If you were laid off for a period in 2009 or 2008 and are now back to work, currently an underwriter may request a verification of employment rather than just a pay stub to verify the probability of continued employment. If you are just recently re-employed, chances are your refinance mortgage application will not have final approval for funding until you have received at least one paycheck.

If you have gone from a conventional salaried or hourly position, what the industry terms “W-2″ or wage earning employment, to self-employed or commission employment you will have difficulty getting your new income qualified. Provided your prior and current employment are in related fields or duties, having a gap can be overcome in underwriting. Do not let an employment gap prevent you from using mortgage calculators to determine your savings from a mortgage refinance.

Unemployment insurance as income

It is against federal law to discriminate in credit qualifying based upon the nature of the income received. As long as the income is consistent and can be verified for a two-year period it should be considered for mortgage application qualification. If you receive unemployment insurance payments on an annual basis (what is termed “seasonal unemployment”) and can verify not only the unemployment insurance income but also the continuity of employment with your employer or in your field, then the unemployment insurance will be considered for your application.

Many different industries have “seasonal unemployment.” Non-tenured professors at some universities or community colleges are hired just for the term or school year and then re-hired at the start of the next year or term and qualify for unemployment insurance in the summer. In the entertainment industry shows go “dark” during part of the year putting sound engineers, camera operators and others out of work until shooting starts again, and many of these people qualify for seasonal unemployment.

If you can exhibit a history of receiving unemployment for part of the year and ordinary income from primary employment for the remainder of the year your unemployment insurance income qualifies. Go ahead and consider it when using a pre-qualification calculator to determine a new home loan payment or with a refinance calculator.

Being unemployed now and then does not automatically make you unqualified for a mortgage. What impacts your ability to qualify is your income history and your ability to prove that income history. Before deciding for yourself whether you qualify or not for a mortgage, either to purchase a new home or to refinance your existing mortgage, speak with a mortgage professional to determine if your employment and income history enable you to qualify. You might be surprised.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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