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Qualify for a Mortgage if Contract Worker Between Jobs?

Can you qualify for a mortgage if you are a contract worker but you are currently in between jobs and unemployed?

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

In most cases it is highly challenging to qualify for a mortgage if you are unemployed.  If you have a track record of consistent seasonal or contract employment, however, you may be able to get approved for a mortgage but the process requires additional documentation and there is no guarantee of the outcome. 

The ultimate answer to your question depends on your contract work history and income over the past two years according to your tax returns. If you have earned approximately same amount of money both years, the lender may average your income over that time period to determine your ability to qualify for a mortgage, even if your income is interrupted by periods of unemployment.

This is the same approach used by lenders for self-employed applicants.  Please note that unless you have a seasonal job and your employer has committed to re-hiring you for the following season you usually can not include unemployment income in your loan application.

For example, if you earned $75,000 and $85,000 from contract work, excluding unemployment income, in each of the prior two years, a lender may give you credit for $80,000 in annual income (the two year average) or $6,666 in monthly gross income when you apply for a mortgage. Lenders are more likely to apply this method if your application has positive supporting factors in other areas such as a high credit score, significant financial reserves, a 20%+ down payment or a low debt-to-income ratio.

Use ourMORTGAGE QUALIFICATION CALCULATORto determine the loan you can afford based on your income and monthly debt payments

As a fist step, I recommend that you organize your employment and income documents for the past two years including your tax returns, 1099 forms, pay stubs and bank statements.  Any documentation that you can provide to lenders that verifies the consistency of your income is helpful.

Your next step is to review this information with lenders to understand if you meet their guidelines and to learn the mortgage amount you qualify for.  We should highlight that it is best to have these conversations when you are employed, if possible.

The table below shows leading lenders in your area.  We advise you to contact multiple lenders to determine if you are eligible for a mortgage.  It is important to speak with several lenders because qualification guidelines vary.  In short, one lender may decline you while a different lender approves your application.

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Current Mortgage Rates as of August 13, 2020
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

If you are unable to qualify for a standard mortgage program you may want to consider a bank statement program.  As the name suggests, a bank statement program enables you to qualify for a mortgage based on your bank statements instead of your tax returns or 1099s and are frequently used by contract workers and self-employed borrowers.

As long as regular deposits appear on your bank statements, you should be able to qualify for a mortgage assuming the income enables you to afford the monthly payment, property tax and homeowners insurance.  From the lender's standpoint, the more consistent the deposits and income, the better.  

Review How a Bank Statement Mortgage Works

Many bank statement programs only require twelve months of statements to verify your income although some programs may require 24 months. Lenders average your monthly gross income over the time period for the statements you provide.

The downsides of a bank statement loan are that lenders typically charge a higher mortgage rate plus the qualification guidelines can be more challenging in other areas. For example, bank statement loans usually require a higher down payment and minimum credit score.

Although a bank statement loan is more expensive it may enable you to qualify for a mortgage despite breaks in your employment as a contract worker, especially if you are not eligible for a traditional mortgage.

You can use the FREEandCLEAR Lender Directory to search over 3,900 lenders by loan program.  For example, you can find top-rated lenders in your state that offer bank statement mortgages.

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Sources

"B3-3.1-05, Secondary Employment Income (Second Job and Multiple Jobs) and Seasonal Income."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, August 7 2019.  Web.

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About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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