What is “Stability of Income” When Qualifying for a Mortgage


You can’t get a mortgage until you can afford the home loan payment. But the amount of your paycheck isn’t the only thing banks consider. Underwriting also looks at the stability of your income.

 Not everyone applying for a mortgage is approved. And sadly, some people are rejected for home loans because they don’t fully understand a lender’s income requirements. You don’t need perfect circumstances to qualify for a mortgage loan. But you must prove that your income is stable and consistent.

1. No gaps in employment

 When applying for a home loan, the lender also looks at your employment history. The bank checks for any significant or recent gaps in employment. Of course, mortgage lenders realize that some situations are beyond your control. So if you have gaps in employment within the past two years, you might still qualify for a loan if you can provide a reasonable explanation.

 Maybe you were laid off, but found work within a couple of weeks or months in the same field. But if you’re just now returning to the workforce after a significant gap, or if you’re newly employed with a short work history, the lender might question the stability of your employment, which makes you a risky candidate for a home loan.

2. Avoid frequent job changes

Even if you don’t have gaps in employment, frequently switching employers every year or six months can make a lender nervous. Your income may be consistent, but lenders prefer applicants who’ve been with the same employer for at least 24 consecutive months, or who’ve at least worked in the same field for two years.

Fortunately, some lenders also take into consideration the reasons behind frequent job changes. For example, if job changes resulted in moving up in your career, your lender might overlook the switch.

3. When did you become self-employed?

Self-employed people can qualify for a mortgage loan, but this depends on several factors, such as when you became self-employed and your income according to tax returns.

 You will need to provide at least two years of tax returns before you can qualify for a home loan as a self-employed borrower. This is important, so keep good records. As a self-employed borrower, you don’t receive a paycheck stub or a W-2. Your tax return is the primary statement lenders use to verify your income.

 Be aware that business deductions or write-offs lower your net income, which can also reduce your qualifying amount when applying for a home loan. Therefore, if you’re planning to purchase a home, consider limiting your number of tax deductions for a couple of years to boost your net income. When a lender evaluates your tax returns, underwriting also checks to see if your income has increased or decreased over the past two years. Self-employed people typically experience fluctuating income from year to year. With that said, mortgage lenders use their average income over a two-year period for qualifying purposes.