Can you use a job offer letter to qualify for a mortgage?

By Michael Jensen, Mortgage and Finance Guru

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

Updated October 20, 2020

There are two ways you can use a job offer letter to qualify for a mortgage.  The approach that applies to you depends on when you start your new position.

If you plan to start your job before your mortgage closes, you can qualify for the loan by providing your job offer letter and at least one pay stub for your new position.  In this scenario, you provide the offer letter to the lender when you submit your loan application and you provide the pay stub prior to closing, or even better, as soon as it is available.  The pay stub should confirm the terms of your offer letter including your employer, income and how your are paid.

The qualification process is much more challenging if your new job does not start until after your mortgage is scheduled to close or if you cannot provide a pay stub.  As we outline below, in this case, you are required to satisfy additional qualification requirements.

First, when you apply for the mortgage, you are required to provide an executed job offer letter signed by both you and your employer.  The offer letter must state your position, start date, how much you are paid and how you are compensated.

In this situation, lenders only consider your income from salary or hourly wages to determine the mortgage you qualify for.  Bonus or commission income is not included in your application for this particular way of qualifying.  Additionally, you cannot be employed by a relative or a person or company that is involved in the property sale or mortgage process.

Your employment start date can be no sooner than thirty days before your mortgage closes or later than ninety days after closing.  Lenders apply this guidelines because if your start date is more than ninety days after your loan closes, this long time period creates too much risk for the lender to use the job to qualify you for the loan.

Also, if you start your new job more than 30 days before closing, you should be able to provide a pay stub (which actually makes the process much easier, as we explained above).  If you begin your job within 30 days prior to your loan closing, the lender is required to confirm that you have started working.  

If you cannot provide a pay stub for your new position, you are also required to meet a financial reserve requirement.  You must hold savings in reserve at closing equal to six months of total monthly housing expense -- which includes your mortgage payment, property tax, homeowners insurance and HOA dues, if applicable.

You can also meet the reserve requirement if you demonstrate that you have enough funds to cover your total monthly housing expense plus your other personal debt obligations such as credit cards and car, student and personal loans for the number of months in between closing and when your new job starts, plus one.  For example, if your loan closes on May 1 and you are scheduled to start your new position on June 1, you are required to hold two months of financial reserves at closing.

The final points to highlight about qualifying for a mortgage with an offer letter if you have not started your job is that only purchase mortgages on single unit owner occupied properties are permitted.  Refinances as well as multi-unit and investment properties are not eligible using the qualification approach outlined above.

Please note that, regardless of the qualification method, if your offer letter states that your job has a trial period or any conditions, then most lenders require that you wait until the job becomes permanent before you can qualify for a mortgage.

In closing, qualifying for the loan with both an offer letter and a pay stub for your new job is far easier than qualifying with only an offer letter.  That said, as long as you meet the lender's qualification guidelines and document requirements, it is possible to get approved for a mortgage with an offer letter before you start your new job.

Now that you understand how the process works, we recommend that you contact multiple lenders to confirm their internal qualification process.  This question and circumstances are relatively unique so you may need to speak with several lenders to find one that meets your needs.

Sources

"B3-3.1-09, Employment Offers or Contracts."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, October 2 2019.  Web.