As the economy is still being impacted by the Coronavirus, unfortunately many across the country are unemployed. Whether it’s a temporary furlough or a particular company has closed down until further notice, more and more people are finding themselves in the unemployment line. Recent data from May shows some improvement from the previous month, but still the most recent number shows the unemployment rate fell to 13.3 percent and added 2.5 million non-farm payroll jobs. That’s quite a rebound, in fact it’s the strongest one month job growth on record, but that’s an indication of how many were laid off in the first place.
Fortunately, most unemployed are covered by unemployment insurance. While the unemployment insurance is certainly a welcome amount, it’s typically much less than regular pay. Still however, it’s there. That said, for those thinking of buying a home while being recently laid off, what to do with that unemployment income? Can it help someone qualify? Can a lender use that income to boost overall monthly income?
In short, no. At least in most cases. Why not? Primarily because it’s how lenders calculate and verify income. First, lenders ask for a two year history of receiving income from a job. When lenders begin documenting a loan file, borrowers can expect to provide the last two years of W2 forms or if self-employed, the last two years of income tax returns. These two years fulfill a lending requirement of having at least two years of verifiable income from a steady source. Second, the lender must make the determination that the income is likely to continue into the future, sometimes as long as three years.
For those newly unemployed, that two year history won’t be there. That’s a good thing, though. Consumers would rather be working and earning. At the same time, a lender won’t be able to make the determination that someone will be unemployed well into the future for as much as three years. In most states, the maximum number of weeks people can be eligible for unemployment benefits is 26 weeks. That’s six months, not three years. For these two main reasons, unemployment income can be used for everyday expenses but not counted when qualifying for a new mortgage.
On the other hand, some jobs are seasonal, and a business can have a history of hire/fire cycles. Construction workers come to mind. They can work a job, the job is completed and they’re laid off. When a new project comes up, they’re rehired. Unemployment income can be used in this instance but again it must adhere to the two year history rule. Being able to verify a two year history of working seasonal jobs can help contribute to overall monthly income in order to help qualify for a mortgage. In fact, unemployment income from consistent, seasonal work is much the same for any seasonal or part time job. Show a two year history of receiving seasonal income and it can typically be used to help qualify.
If you’re not sure if you can use your unemployment income in order to qualify for a mortgage, have a phone call with your loan officer and get your questions answered to fit your individual scenario.