October 13, 2023
Some important financial issues can derail your FHA home loan application. They include missed housing payments, FICO scores that don’t meet lender standards, or a lack of time in the job market.
These are all factors that can lead to a “no” from a lender.
But there’s a “new” wrinkle. Insufficient income–not a new problem, obviously, as many aspire to buy a home but can’t afford it yet. But it is a trending issue in ways that make some financial pundits sit up and take notice.
According to CNBC, insufficient income is a problem is a major reason why some loan applications get rejected in 2023.
Rates And Mortgage Payments Higher In 2023
Home loan interest rates were flirting with the 8% range at the time of this writing, and higher rates make it difficult for some to afford a new home. But plenty of borrowers do not feel they have the luxury of waiting and begin exploring the housing market regardless.
CNBC’s 2023 article says, “Higher rates add to monthly payments, which can mean it’s harder to qualify for a mortgage.”
In 2022, loan application rejections due to insufficient income happened “…more often than any other point since records began in 2018,” according to a report from the Consumer Financial Protection Bureau.
The Income Problem
Do you worry about insufficient income? You might be tempted to consider a part-time job or side hustle. But remember that some types of income cannot qualify as income for your home loan.
Some work side gigs as retailers or resellers on Etsy, eBay, and Shopify. Is your lender likely to approve this income? In many cases, the answer may be no since such income does not have a reputation for being stable and likely to continue.
An Important Factor: Time On The Job
A typical part-time job is sometimes easier to “sell” to a lender when you are bringing additional income to the bargaining table.
Keep in mind that it may be necessary to work that part-time job for an FHA-required and/or lender-required minimum amount of time before the lender can allow that income to be used to qualify for the mortgage.
Depending on circumstances and the lender standards for those situations, you may need to work your side gig or extra job for at least one year, possibly two.
Should you treat your part-time income like your full-time income? Approach it with the idea that time on the job is essential. FHA loan approval guidelines indicate the longer you have held the part-time job, the more likely it is that the income may be allowed to help you qualify for the mortgage.
Moving from one part-time gig to another isn’t helpful for loan approval and it’s smart to try to put in as much time with a single part-time employer as you can in the year or more leading up to your loan application.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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