Nearly 20 percent of the U.S. population works in a part-time capacity, defined by the Department of Labor as less than 35 hours per-week. And those who are pushing that 35-hour limit know that they put full-time effort into that “part-time” job. Many people can live comfortably working at a part-time job for their entire lives.
But can they get a mortgage to help them buy a home while working a part-time job? Absolutely.
We advise all of our clients and readers to review their own cases before applying for a mortgage, but it’s especially true for someone who may bring in less income due to their part-time status. Make sure that you have a two-month “rainy day” fund before making a major purchase, such as a home. It’s worth waiting a few years to save up, just to ensure that you won’t end up in a bad situation.
If you’ve done the math and believe you can afford it, you can certainly get a mortgage. Here are five steps to help guarantee your success.
01) Speak With A Lender
Communicating with an experienced lender is always helpful, but this may be the best example of where a lender’s advice is essential.
What you can qualify for as someone with part-time employment varies dramatically depending on circumstances. No one is more equipped to guide you than a lender. They know the right questions to ask, both to make sure you qualify as well as what your best options are. They can also guide you to helpful First Time Homebuyer programs, to help you save more at closing and during financing. Any savings you can acquire make a huge difference when applying with part-time income.
02) Dump Your Debt
A major factor for anyone applying for a mortgage is their debt-to-income ratio. This is a measure of how much you owe compared to your monthly income. A high DTI can hurt anyone’s application process, but it’s a killer for those with lower, part-time income.
A good benchmark for DTI when applying for a mortgage is 36 percent. For example, a full-time applicant might make $5,000 a month. If they pay $850 per month on the mortgage payment, $300 for student loans, $300 for their car, and $350 on other bills, their DTI will be exactly 36 percent.
It’s tougher if you only make $3,000 a month as a part-time worker. If your mortgage payment is $850, you only have $230 to spend before you reach a 36 percent DTI. You can beat lower income by having lower debt. Don’t keep a high balance on your credit card, or perhaps get help from a relative to pay off your vehicle. This will greatly lower your DTI.
03) Double Up On Documentation
As we mentioned, many people will spend their entire careers in part-time positions. It’s important for you to demonstrate that the income you generate from your part-time position is consistent.
Most lenders suggest that applicants with a full time job provide evidence for two years of employment at the same location. This suggests that the income reported in the application will be consistent across the life of the mortgage. Part-time employees can help their cause by providing more than just the standard two years. If a waitress works 34 hours a week but makes as much as someone working 40 hours elsewhere, she can make a convincing argument by demonstrating that her income has remained solid by providing W2s and tax return documents for three or four years. Providing more than two years of employment evidence isn’t required, but it definitely won’t hurt your cause.
04) Prove You’ve Got A Backup Plan
The mortgage application process is a risk analysis tool for lenders. They want to be confident that you won’t be “underwater” in a few years. You can strengthen your case by showing them that you’ve got a backup plan.
One great option is to find a cosigner. This is someone, a parent or qualifying relative, who agrees to take on your payments if you can’t follow through. Another benefit to this method is that you can benefit from their great credit score as part of the application process.
Maybe all of your savings aren’t cash. If you own assets, such as stocks or bonds, you can present these to lenders as “parachutes,” which you can liquidate if you need emergency cash.
05) Make A Bigger Down Payment
If you’re worried about qualifying for a mortgage, there’s one strategy that you can’t beat: Save up and make a bigger down payment. After all, the more you pay upfront, the less you need to borrow in order to make it work, and the less you’ll need to qualify for. A relative can help you out by giving you a cash gift to be used for the down payment.
You might not work 40 hours a week, but no one can argue that you don’t work hard. Don’t let part-time income keep you from owning a home of your own. Speak with a lender and find out what you need to do to qualify!