Yes, You Can Use Part-Time Income For Mortgage Qualification. Here's How
If you work a part-time job, you might wonder if you can use that income to qualify for a mortgage.
The good news is that lenders do consider part-time income as legitimate for mortgage qualifying purposes under certain conditions.
Here’s what to know about using part-time, seasonal, or second-job income for a mortgage.
Part-time Income
Part-time income must be received for at least two years to be used for mortgage qualification.
This is because part-time work is often considered variable income. Lenders need to see a history to:
Make sure it is likely to continue for three years (continuation)
Calculate the income properly (calculation)
Continuation
Mortgage rules state that income should be expected to continue for three years after closing to be considered. Part-time income can seem temporary to lenders. But if you’ve been consistently working a part-time job for two years, you’ve demonstrated that your source of income is reliable.
Calculation
Part-time income can fluctuate due to varying hours, hourly pay amounts, and shift changes. The lender will average your previous two years of part-time income to arrive at a qualification amount.
For example, if you made $35,000 in part-time income in the last 12 months and $30,000 during the 12 months prior, your average income is $2,708 per month
Year 1 | $30,000 |
Year 2 | $35,000 |
Total | $65,000 |
Divided by 24 months | $2,708/mo |
Exceptions
There are exceptions to the part-time rules. For example, professions where part-time is the only option, such as nursing, may not require a two-year history. Just expect to get a very solid letter from your employer stating your base rate of pay and expected hours.
Second Job Income
Lenders are leery of second jobs because, if there were no history requirements, you could get a second job a month before applying for a home loan and use that new income to qualify.
Then you might quit the day after closing.
This is why lenders need to see a two-year history of working two jobs simultaneously.
Another reason for this rule: the lender doesn’t want your new second job to jeopardize your main source of income. It needs proof you can handle both positions at the same time.
Tip Income
Another type of income that is often associated with part-time work is tip income. This can also be used for mortgage qualifying.
Again, you need a two-year history of receiving the income. The lender will average the last 24 months of earnings.
The catch is that you need to report tip income to the IRS for it to count. The lender will need to see tha the tip income shows up on your W2s, an employment verification from the employer, or IRS Form 4137, Social Security and Medicare Tax on Unreported Tip Income.
If you’re currently not reporting tips, it’s a good idea to start doing so. You'll more easily qualify for a mortgage in a couple of years.
Seasonal Income and Unemployment Benefits
Surprisingly, you can also use seasonal income and recurring unemployment to qualify for a mortgage.
Like part-time and second-job income, it all comes down to history of receipt.
Those who have worked a seasonal job for the past two years can count that income toward mortgage qualification. Additionally, if unemployment is collected in the off-season, that can also be counted with two-year receipt.
For instance, an Alaska commercial fisherman works three months per year and collects unemployment during the off-season. He has been doing this for at least two years. He can use both his seasonal income and unemployment income to qualify.
Here’s how such a situation would be calculated.
Fishing | Unemployment | |
Year 1 | $50,000 | $20,000 |
Year 2 | $20,000 | $22,000 |
Monthly Average | $4,375/mo | $1,750/mo |
His total qualifying income for the loan would be $6,125 per month.
To use unemployment benefits, the income must be reported on income tax returns. The returns must indicate that the unemployment income is due to seasonal work.
Income Trending
Make sure your income has stayed steady or increased during the most recent 12 months compared to the 12 months prior.
If you show declining income, the lender may only use the most recent lower year for qualification. Or worse, the lender may disregard the income altogether if it appears that it will continue to decline.
See If You Qualify with Part-time, Seasonal, or Other Income Types
Many people assume they can’t qualify if they are a part-time worker, or are in another profession that isn’t full-time and salaried.
However, mortgage rules are very clear that you can use these and other types of income.
Apply with a lender to get a full income analysis to see if you can qualify for a mortgage.
