Income, Your Mortgage File

Income, Stable and Dependable

Quality-Risk-ManagementRecently, I had a situation where a young borrower applied for a mortgage. Less than a month ago she started a new job but before that she had less than one year of work history. She had good credit but it was recent due to her young age. The underwriter came to me, unsettled.

Why?

In our industry, underwriters are taught to determine if the income is stable and dependable. After all, if you were going to lend your own funds, wouldn’t you want to determine if that person could pay you back?

There is little guarantee when it comes to income. You can be fired, quit or be laid off in a heartbeat.

So, to give us some insight, we look at the history of employment and income. We typically go back two years.  If the borrower hops from job to job, it might be a sign of instability. But, we won’t give up, and we will dig deeper by looking at the borrower profession, and their historical wages. Some jobs are seasonal, and others require people to drift from one employer to another and we won’t penalize someone for this.  Instead, we’ll look back at several years of wages to see what they have historically earned. We will base our decision instead on the continuity of income.

In the above example, does our borrower have a job history worthy of dependability?  If no, then has she demonstrated a continuity of income?  If no, then my underwriter has a right to feel unsettled.  

What if our borrower decides she dislikes her new job and quits?

What if her employer lets her go because she can’t cut the mustard?

What if she has to take a job of lesser pay?

There are all sorts of questions we ask when it comes to income. I realize history can mean little in the way of the future but it’s the only way we can see how that individual handles responsibility. And handling a mortgage is a large responsibility.  So, don’t be discouraged if an underwriter determines your income is not stable or dependable and instead, use it as a learning experience to better your situation. You will be better for it.

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