Time in Line of Work for Mortgage Qualification - What Counts?

Question from an e-mail:

Hi, I have a question about mortgages. My boyfriend and I are looking to buy a home, and since I have recently quit my job he would be the primary applicant. He makes $44k and we are looking at houses about $150k. We both have very good credit although I have some debt. I am wondering though what kind of rate we are going to get since he recently graduated and just started his job about a month ago. Is that going to affect the rate of the mortgage or how much he can qualify for, and by how much? Also, I have a small business that has been running for about a year and a half - it made a good bit of money last year, about $55k, and is still making some (albeit less now than it was last year.) Would it be worth it for me to co-apply, based on that income, since I don't have a salaried job currently? If I am not on the mortgage, I will sign a lease to him. We are going to put about $10,000 down. Thanks!

First off, let me briefly explain that unless someone has either truly putrid credit or large monthly payments that kill the debt to income ratio, there just isn't a reason to leave someone off a loan. So what if John is a househusband or Jane is a housewife with no income? They're still part of that marriage partnership, and the same applies (minus the word marriage) if the folks involved aren't married. Gays with civil unions and cohabiting straights are exactly the same as married folks except that I have to put them on separate applications instead of applying on the same sheet of paper, and if they're committed to each other, well isn't that what being a committed partner is all about - sharing benefits as well as responsibilities? In other words, ownership of the property and indebtedness for the loan.

Depending upon your situation, however, if you sign the lease it may actually help the boyfriend qualify more than your income would if you were on the loan. Leases that fulfill lender requirements generally aren't scrutinized for the ability of the lessee to pay, where if you were on the loan, the money that the lender would believe you could contribute might not pass scrutiny.

Now, let's look at the individual situations.

You are the more clear cut candidate. You have no current salaried income from employment, but you do have a side business with historic, documentable income. If you'd been doing it for two years, you'd have two years in current line of work and the ability to use that income all in one fell swoop. The way that is measured is monthly income averaged over the previous two years, as reported on your federal income tax forms. However, at this point all you have is one year. Still, it's worth submitting, because $4150 per month over one year isn't chicken feed. If you can show some income in the business for 2006, and evidence of when you started, they're likely to average it over the full two years leaving you with a minimum of about $2100 per month to add into the gross income kitty. After all, it's a going concern, you're still doing it and nobody fires owners.

Furthermore, if you can get a job and a paystub in your previous field of employment before you apply for that loan, now you're employed over two years in the same line of work, simply with a gap in employment. When they average that out, it'll be a bit of a hit, but you'll still get substantial credit for your employment income.

Your boyfriend is a bit less cut and dried. If he's in the profession for which he was was granted the degree (for instance, a doctor or nurse when he was studying medicine), then it's a lot easier to get credit for the time in line of work. He was in medicine, he just wasn't getting paid until recently. It isn't written into A paper guidelines that I'm aware of, so it's a matter of lender guidelines and often what an individual underwriter will sign off on, but probably the majority of lenders will buy off on something like this.

If the boyfriend is in an profession unrelated to the course of study, he's just going to have to wait until he has his two years in. There's no history of involvement, and people get jobs in various fields all the time that it turns out they can't - or won't - continue in. For example, sales. That's fine, but the lenders don't want to get caught by default when they leave the field and can't make mortgage payments.

So I can see possible situations arising out of what you describe that could have either one of you primary on the loan, or completely unable to do the loan without resorting to subprime financing. Each individual situation can turn upon some very fine points, kind of like theology or law.

Caveat Emptor