Going from renting to buying is a high priority for many Americans. We’ve all been taught that homeownership is a key piece of the American dream. But if you’re between jobs, is homeownership out of reach? Let’s take a closer look at the question of whether you can buy a home while unemployed. If you have questions about the specifics of your financial situation, consider consulting a financial advisor.
Can You Get a Mortgage If You’re Unemployed?
The simple answer to this question is likely “no,” as every lender will require you to have verifiable income. Having income in the form of being a W-2 employee is the easiest way to qualify for a mortgage. Many lenders won’t look at lending to you if you aren’t able to provide verifiable income like that.
However, it is possible for you to get a mortgage in a more unconventional way. Some lenders will consider other income if it’s significant enough to cover the monthly payments of what you’ll be borrowing. Typically, if you can prove that you have income other than a W2-paying job then you’ll have to show a consistent amount of income from past tax filings.
Improve Your Borrower Profile
Before you do anything else you’ll want to improve your overall borrower profile. Shopping for a mortgage is a process that involves jumping through some hoops. One of those hoops is making yourself attractive to mortgage lenders. Generally, aspiring homebuyers need a few elements in place: a high credit score, a low debt-to-income ratio and enough money coming in to cover monthly mortgage payments.
If you’re currently unemployed, it can be hard – but not impossible – to make your case to mortgage lenders. However, unemployed folks who still want to buy a home have options. For one thing, you can be unemployed and still have a high credit score and a low debt-to-income ratio. The lower your debt, the less money you need coming in to stay at or below the 36% debt-to-income ratio that experts recommend.
Prove Alternative Income Sources
Some people have enough income to cover a mortgage even though they don’t have a job. If your investment income provides you with enough to make monthly mortgage payments and pay for basic living expenses too, you may not have much trouble convincing a mortgage lender to help you become a homebuyer.
The same goes for any other sources of income you might have, whether from a lawsuit settlement, Social Security, alimony, a life insurance policy, a gift, or an inheritance. If you have a non-salary income source that you can rely on as a homeowner, mortgage lenders should be willing to work with you, as long as your credit score and debt-to-income ratio are up to par.
Make Your Spouse The Lead Borrower
Another option is to rely on the income of someone else. If you’re buying a home with a partner who is employed and has solid credit and a low debt-to-income ratio, it may be best for your partner to take the lead on the mortgage application. That way, your unemployment won’t count against you. That is, however, as long as your partner’s income is high enough to meet lenders’ standards.
Additionally, if you have parents or other wealthy relatives who are willing to help you with the home buying process, you can discuss a gift that will enable you to satisfy lender requirements while you’re between jobs. A gift likely won’t be enough to get your loan through underwriting by itself. However, it could help if you just need to have a certain amount of money in the bank to qualify or if you need a bigger down payment.
Use a Co-Signer
Another possibility is to have someone who has significant income and a strong credit profile co-sign the loan. You could bring in a parent or relative who’s willing to help you out while you’re in between jobs. This will essentially allow them to help you guarantee the loan. This might be a tough sell to your relatives but it is a possibility. You can refinance later and take them off of the loan when you’re back on your feet.
Bottom Line
Many people choose to wait until they don’t have a job before prequalifying for a mortgage. However, for others, waiting is not an option. If renting is more costly than buying in your area, or there are other compelling reasons to buy a home while you have no job, you’re not facing an impossible task. As long as you – or someone who is willing to help you – can present lenders with a high credit score, a low debt-to-income ratio, and a solid income source, convincing a mortgage lender to work with you shouldn’t be too hard.
Tips for Buying a Home
- Buying a home will likely factor into your larger financial plan, which means you may want to consult with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Figure out how much house you can afford. With that number in mind, create a monthly budget and start saving for your down payment and closing costs.
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