How long must I be on the job to qualify for a USDA Rural Housing Loan
We were recently asked, "How long must I be on the job in order to qualify for a USDA Guaranteed Rural Housing loan?"
The answer may surprise you.
Many people believe that you have to have 2 years work history in order to qualify for a mortgage loan. That's not always the case. In fact, with FHA and USDA Government Loan Programs, there are some exceptions allowed, according to the underwriting guidelines.
When asked about a particular borrower's scenario where the person had been laid off of work for a period of months but had recently been given a new job offer, here is the response that was given by a representative at a USDA Rural Housing Development office:
This comes from AN 4543
Approved lenders must determine stable and dependable monthly income
from verifiable sources. Refer to sections 1980.345(b) and 1980.345(c)(2)(i).
There is no minimum length of time an applicant must have held a position to
consider employment income as dependable. Obtaining two years of
documentation for an applicant’s employment and income history will assist
lenders in their analysis regarding probable stability and continuance of the
present income source.
The applicant should not have any gaps inmployment of more than a month
within a two year period of loan application. The lender may consider
reasonable allowances under the following circumstances:
(1) a recent graduate, as evidenced by college transcripts, or a recent member of the military, as evidenced by discharge papers, entering the civilian workforce. Caution must be utilized when the applicant’s employment includes a probationary period;
(2) an applicant has recently re-entered the workforce after an absence to care for a family member or minor child, extended medical illness, or other circumstance reasonable to the lender;
(3) an applicant will begin a new job with a firm offer letter from the employer indicating a start date within 90 days of loan closing (lenders must verify the applicant will have sufficient income, or cash reserves, to support mortgage payments and other obligations during the time between loan closing and the start of employment), this type of allowance is commonly represented by an applicant enterin a teaching position with a contract from the school district; and
(4) an applicant that frequently changes jobs but demonstrates income continuity.
Sources of income the lender cannot verify are not acceptable for the purpose of qualifying applicants for guaranteed loans. Income that is verified, but not considered stable and dependable by the lender, may be considered as a compensating factor for meeting debt ratios. It remains the lender’s responsibility to fully document their analysis and basis for stable and dependable income utilized. The lender must be able to determine the applicant’s income stability based on the available documentation.
[Therefore,] RD would review the underwriting as to the basis for stable and dependable income. RD cannot give you a yes/no, it’s going to be up to your underwriter.
So, what does this all mean?
Government loan program underwriting guidelines can be clear as mud, right? While the Rural Development representative's answer was less than concrete about this borrower's specific situation, they did point out some areas within the guidelines that allow for less than two full years of steady employment. There may be some situations where you can obtain an exception to the 2 year employment rule when applying for a USDA Guaranteed Rural Housing Loan.
In layman's terms, some possible scenarios that may work would be:
- Recent College Graduates obtaining a new job directly related to their Degree / Field of Study (evidenced by transcripts)
- Re-trained workers after a period of unemployment
- Moms re-entering the workforce after an extended maternity leave (new employment should be in similar career field unless schooling was involved)
- Borrowers re-entering the workforce after a divorce (new employment should be in similar career field unless schooling was involved)
- Military personnel re-entering the civilian workforce
- Using a new, higher paying job income right away instead of averaging the last 2 years of income documentation - Requiring the offer letter, Verification of Employment signed by new Employer and proof of a new paystub. (Must be a strong case, and preferably in the same career field as prior work history.)
Michael Patterson, Branch Manager at Land Home Financial Services in Issaquah Washington says,
"The main thing to consider on FHA and USDA loans is that it truly comes down to a make-sense underwriting decision. Is there a major risk factor on the employment stability? Or, can it be documented that the income is more likely than not to be stable and continue in the future? The reason an underwriter looks back 2 years is so they can polish up their crystal ball and forecast for the next 3 years, determining if there is a risk or cause for concern from an income standpoint. If there is a plausible explanation for a gap in employment, and the new employment / income source is deemed to be stable, then we can make a case for it to the underwriter. A good loan officer is your best advocate for helping you properly document this and prove your case to the underwriter. At Land Home Financial Services, Inc. [in Issaquah, Washington], 80% of the initial underwriting decisions are made first at the branch level before we submit a loan to an underwriter."
We at Homeowner University sincerely hope this article helps. Everyone's situation may be a little bit different so it's important to contact a trusted advisor if you have questions.
If you're unsure of where you stand in your own situation and would like to get a free no obligation opinion from a loan professional, Michael Patterson at Land Home Financial Services in Issaquah Washington has made himself available to answer your questions. Feel free to contact him below.
Email Michael Patterson
Applicable state disclosure regulations require the above licenses and information to be explicitly disclosed. Land/Home Financial Services, Inc. currently provides loans in 40 States. Some products may not be available in all states. Restrictions apply. Mortgage Lending in Washington State is authorized under WA Dept of Financial Institutions Consumer Loan License # CL-89331. Land/Home Financial Services is an Equal Housing Opportunity Lender and lends only in states we are licensed in.