Fannie Mae is making it easier for borrowers changing jobs to qualify for a home loan and document their income through an update in its employment offer policy.
Stability of income is an important aspect of any mortgage underwriting. This leads to the common belief, a fair warning to all, that borrowers should remain in their jobs pending their mortgage applications so as not to impair their eligibility for a loan. Or, if one has just been recently employed, the new work should have commenced prior to the loan’s closing date.
While that may still be a requirement in qualifying for most mortgages, those applying for conventional loans deliverable to Fannie Mae can heave a sigh of relief.
With the launch of Desktop Underwriter® Version 10.1 last July, Fannie Mae is allowing borrowers to qualify based on their employment offers, allowing for a smoother closing of loans regardless of whether if they have officially started on their new job or not.
This flexibility gives contractual employees an opportunity to buy a home based on future employment and settle into their new jobs with ease at the same time.
Do you have a verifiable employment offer with you? You could qualify for a Fannie Mae loan. [sc_content_link label=”Find out more here.”]
Fannie Mae’s Updated Employment Offer Policy
The release of DU® Version 10.1 meant exciting changes to Fannie Mae’s mortgage guidelines including those relating to employment offers.
Fannie Mae’s old policy, for instance, allowed the use of income from an employment offer or contract to start a new job for qualifying purposes, provided that the borrower begins his/her new employment as evidenced by paystubs prior to the loan’s closing date.
However, Fannie Mae has updated this policy as reflected in the latest DU® to provide another option: allowing a mortgage to close prior to a borrower starting his/her new employment.
This new option is applicable to the following transactions:
- The purchase for a one-unit, principal residence home.
- The borrower not employed by a family member or any interested party to the transaction.
- The borrower being qualified using fixed base income which should be clearly stated in the employment offer.
- The borrower’s work start date being within 90 days of the loan note date.
Starting Employment Before and After the Loan Closing
Fannie Mae provides lenders with two options in delivering loans using employment offers or contracts.
Option 1. When the loan is delivered to Fannie Mae after the borrower starts his/her new employment, the lender is required to obtain an executed copy of the borrower’s offer for future employment and expected income. This income must be fixed base, e.g. guaranteed 40 hours a week, and clearly stated in the contract.
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Prior to the loan being delivered to Fannie Mae, the lender is required to obtain a paystub that contains information sufficient to support the income used by the borrower to qualify based on his/her contract offer. This paystub will be included in the borrower’s mortgage case file.
Option 2. When the loan is delivered to Fannie Mae before the borrower starts his/her new employment, the lender is required to obtain and evaluate the borrower’s contract offer that should:
- Identify the name of the employer and the borrower. The document must be duly signed and accepted by both parties.
- Identify the start date, position, type, rate of pay, and other employment terms.
- Not be conditional. If the employment has conditions, then the lender must confirm that such conditions for employment have been met. This confirmation will be included in the loan case file.
Aside from reserves required by DU® for the relevant transaction, the lender must document the borrower’s (i) financial reserves covering six months of principal, interest, taxes, insurance, and association dues on the property (PITIA); and (ii) financial reserves to cover the PITIA and other monthly liabilities of the borrower for the months/days between the note date and the employment start date.
In matters concerning employment offers/contracts, lenders can get a Verification of Employment or VOE stating the year-to-date earnings of the borrower to verify income used to qualify for the mortgage, in lieu of paystubs.
Here’s to your future employment and future home, too!
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.