It’s an issue that hasn’t gotten much attention, but should be a red alert for first-time buyers and others who supplement their incomes with part-time work: Though part-time earnings are playing an increasingly important role in the post-recession American economy, the income you earn part time may not count when you go to buy a house.
What? Isn’t income always income? If you make $42,000 from your regular full-time job and another $18,000 by working part time at a second job, isn’t your gross income $60,000?
The IRS would tell you it is. But mortgage lenders may disregard the $18,000 unless you can document that you’ve been receiving the extra money steadily for two years and the pay is likely to continue.
There might be some wiggle room on this depending on your specific circumstances, but under rules established by the dominant players in the home loan market – Fannie Mae, Freddie Mac and the Federal Housing Administration – part-time income generally isn’t “qualifying income” for mortgage purposes until it’s been flowing for a couple of years.
The problem can be especially severe for borrowers with moderate incomes who have solid credit histories and have taken on second jobs to support their families. Robert Montalbo, a loan officer in San Antonio with Premier Nationwide Lending, a mortgage banking firm, says he sees many credit-worthy applicants who “get a [part-time] second job to make ends meet” and who simply want a piece of the American dream – to buy a home of their own.
“Even if they can show they’ve worked at that [part-time] job for 16 months straight I may have to turn them down,” Montalbo said in an interview.
But modest-income applicants are hardly alone in confronting the problem. Richard M. Bettencourt Jr., a branch manager with the Mortgage Network Inc., in Danvers, Mass., recounts a recent experience he had with a borrower who earns $96,000 a year. The applicant had been self-employed as a certified public accountant for 12 years but had to close his business because of a heart condition. However, two of the CPA’s previous clients convinced him to accept part-time positions for their firms. He received regular salaries from both companies but had worked for only one of them for more than two years. As a result, only the salary from that company qualified as “income” for mortgage application purposes; the earnings from the other were deemed ineligible by underwriters.