Today purchasing a home before beginning a new career or job is a realistic and obtainable aspiration. Typically when home buyers apply for a mortgage, a lender will take into consideration income and debts to determine the amount they will lend. However, there are many instances where those interested in home buying have not yet started their job/career. Examples include doctors, dentists, lawyers and military. The concept of the offer letter mortgage allows those who likely will later qualify based on their income once they begin their job, to qualify now with an offer letter or contract from their employer evidencing what their future income will be once they begin their job. Based on this offer letter or contract, a mortgage lender can determine the loan amount they will lend based on that future income.
What is the Offer Letter Mortgage?
The offer letter mortgage allows recent graduates from medical, business or law school and employees who are relocating to have the chance to make the most of a possible job income to apply for a mortgage, whether or not they have earned an income within the last 12 months. Based on the letter from a borrower’s employer, lenders can have more confidence that there is a source of income that will allow the borrower to repay their loan as if they had that income currently. This future income based mortgage system is hardly a new program and has been around for several years, however, due to the economic issues of 2008 mortgage lenders discontinued access to this type of lending. This was largely due to the majority of lenders doubting the sustainability of offer letters employers from the United States were submitting.
Generally speaking, job offers are largely rescind able, capable of changing, and reversible, whether signed by every party concerned or on an official company letterhead. Likewise, lenders came to learn the hard way that job offers that look legitimate are often products of forgery, and therefore question the authenticity of the job offer letters. To protect themselves against revocation and fraud, financial institutions halted their underwriting to the published guidelines for mortgage by Fredric Mac and Fannie Mae. The lenders came up with novel rules that added burdensome requirements to the borrower who now had to offer extra proof of a job by essentially providing pay stubs for 30 days. This proof of income requirement dealt a fatal blow to the offer letter mortgage program.
A few years later however, financial institutions began changing their tune and loosening their guidelines. No longer do they require pay stubs from an entire month for approval of an offer letter mortgage loan and they now are accepting offer letters signed as the proof of an income. The availability and requirements of offer letter mortgage lending is different for each lending institution. Sometimes a job offer alone is insufficient to qualify in any situation, however a signed employment contract may be used in conjunction with Fannie Mae or Federal Housing Administration (FHA) mortgages. Not all lenders will accept an employment contract, as it is still a risk to the lender to consider income from a job that hasn’t begun yet. Lenders sometimes require more proof in order to qualify for a mortgage, such as proof you’ve received income before FHA can endorse the loan or sold to Fannie Mae.
FHA rules allow for “future employment” to be considered as verifiable income for an FHA loan if that employment meets FHA standards. The FHA has specific guidelines as to what is required for an offer letter mortgage. A borrower’s projected income is acceptable for qualifying purposes if the job will start within 60 days after the loan closing and if there is a guaranteed, non-revocable contract for employment. The mortgage lender is required to verify the borrower will have sufficient income or cash reserves to support the mortgage payment and any other obligations between loan closing and the start of employment.
The loan is not eligible for endorsement if the loan closes more than 60 days before the borrower starts the new job. To be eligible for endorsement, the mortgage lender must obtain additional documentation from the borrower such as a pay stub or any other evidence indicating that he/she has begun the new job (an example is a recent medical school graduate who is beginning residency).
Fannie Mae has its own guidelines when the borrower is required to furnish an employment offer letter or contract to qualify for a mortgage. If the borrower is scheduled to begin employment after the loan closes, the lender may use the borrower’s offer letter or contract for future income to underwrite and close the loan. This largely depends on the lender’s risk assessment on each individual loan. The lender must obtain the borrower’s offer letter or contract for future employment and determine whether to close the mortgage loan prior to the borrower beginning the new job. The lender must obtain a pays tub from the borrower that provides sufficient information to support the income that is used qualify the borrower prior to delivering the loan. Lastly, the borrower must begin employment before the lender delivers the loan to Fannie Mae. If receipt of the income or employment information cannot be obtained prior to delivery to Fannie Mae, the loan is ineligible for delivery.
If you are going to start a prospective job in the next three months, you may be eligible to obtain a mortgage based on your job offer letter or employment contract, however there are likely additional requirements and documents that must be provided to a lender. For approval on an offer letter program, there are essentially 5 things you should have available to provide to your lender in the event they require them in addition to your offer letter/employment contract. These include:
- Evidence indicating the home will remain your primary residence;
- A non-contingent new employer and applicant signed offer letter or employment contract;
- Evidence showing your job will start within the next three months of the closing date of the mortgage;
- Evidence of cash reserves for mortgage payments, homeowners insurance and taxes during the period between starting date and job closing date including 90 days of reserves; and
- Evidence indicating the home is a condominium, town home or a single-family home.
Best Mortgage Rates Can Help
Whether you are a recent graduate beginning your career, or relocating for your career and you are planning to purchase a home, the offer letter mortgage option may be a good fit for you. This program allows you the opportunity to use your future income to have your mortgage loan approved. The rates of mortgage are still low and loan approvals can be done easily. You can compare mortgage rates online for free, to know what you need to get started.
Best Mortgage Rate allows you to compare various mortgage rates from hundreds of lenders throughout the country. We believe that when you compare, you save. Far too often, people jump at the opportunity to lock-in on a mortgage rate, only later to find out that there was a better rate available to them. There is a lot that goes into determining your mortgage rate. When you’ve done everything you can do to save for a downpayment, build a good credit score and compile all the necessary paperwork, all that is left is to shop and compare for the best rate. Our system allows you to compare three mortgage rates at the same time. This way, you can better narrow down your search and find the lowest possible interest rate for your home loan. If you are starting a new job or career and want to explore your options for home buying, utilize our online system to assist in finding the best mortgage rate for your loan.