6 Ways To Get a Mortgage If You Don’t Meet Income Requirements
Written by
Martin Dasko
Edited by
Ashleigh Ray
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According to the Mortgage Bankers Association (MBA), homebuyer affordability improved in July, with mortgage applicant payments decreasing 1.3% to $2,140. The MBA also expects that slower home-price growth matched with lower rates will ease the affordability limitations, leading to an uptick in housing market activity.
While affordability is expected to improve, many potential homeowners have been denied access to a mortgage. You could get rejected in your mortgage application process for numerous reasons. However, if you didn’t qualify because you didn’t meet income requirements, you could still reach your dream of becoming a homeowner.
Keep reading to learn the six ways people who don’t meet the income requirements to qualify for a mortgage can still get one.
Look For a More Affordable Home
“The first and generally most prudent [way] is to look for a lower cost home that you do qualify for based on your income,” said Jennifer Beeston, the branch manager and senior vice president of mortgage lending at Rate.
Instead of sticking with a home you can’t afford, switch up the types of homes that you’re searching for and ensure you’re able to purchase the property on your current salary. You don’t want to waste time looking into homes that are out of your price range.
Improve Your Debt-to-Income Ratio
Bill Lyons, a mortgage lender and the CEO of Griffin Funding, suggested another effective strategy for improving your chances of qualifying for a mortgage — pay down your debt.
“Lenders closely examine your debt-to-income ratio, [which is] the percentage of your monthly income that goes toward debt payments,” said Lyons.
As you decrease your overall debt, especially high-interest credit card debt, you can lower this ratio and free up more of your income for mortgage payments. When your debt decreases, the portion of your income available for the mortgage payment increases, which can help you meet the approval requirements.
This means you’ll want to prioritize paying off the high-interest debts to reduce your financial burden and improve your credit score to improve your application as a lender.
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Increase Your Qualifying Income
Mortgage underwriters tend to take a conservative stance when reviewing your income. For example, they may not consider income from a part-time job unless you have a history of working multiple jobs. This means that you’ll want to focus on increasing your qualifying income for your application.
Beeston said, “Often, we will see self-employed buyers who make a large amount of income, but their taxes do not reflect it, which can lead to being disqualified.”
If you don’t meet the standard income requirements for a mortgage, you should also consider exploring alternative income verification strategies.
Sacha Ferrandi, the founder and principal at Source Capital, gave a specific example of how he helped a freelance artist with an irregular income get approved for a mortgage:
“By putting together a detailed portfolio of consistent earnings, such as contracts, bank statements and client testimonials, we were able to show their financial stability beyond what traditional pay stubs could illustrate,” said Ferrandi.
“This approach helped convince the lender to acknowledge their income potential. In similar situations, providing a thorough overview of your income sources can assist in meeting lender requirements and achieving your homeownership goals.”
According to Fannie Mae, there are other sources of income that you may want to consider including, such as:
- Capital gains income
- Disability income — long term
- Employment offers or contracts
- Foreign income
- Retirement, government annuity and pension income
- Royalty payment income
- Social Security income
- Temporary leave income
- Unemployment benefits income
- VA benefits income
Bring In a Co-Borrower or Cosigner
Another option for many people is using a co-borrower or cosigner to use their income to help them qualify.
Eric Croak, a certified financial planner (CFP) and the president of Croak Capital, called upon his experience when he said, “As a financial planner, one strategy I recommend if you don’t meet the income requirements for a mortgage is to consider finding a guarantor or bringing in a co-borrower.”
He added, “If you’re struggling to qualify on your own, a guarantor — usually a family member or friend — can step in and agree to cover your mortgage payments if you can’t.”
Beeston agreed. “In a situation where you can easily make the payment, but your income does not fall into the traditional ‘lending boxes,’ a cosigner is a great solution,” she said.
It’s worth pointing out that a co-borrower can be an occupant or non-occupant. An occupying co-borrower lives in the home, while a non-occupant co-borrower, similar to a cosigner, doesn’t live in the unit but is still responsible for the payments.
“The key to keep in mind is that unless they’re really, truly going to help you with the payment, a cosigner may not be a good idea,” warned Beeston. “If you don’t qualify on your own, in many cases, it’s because the house payment is not realistic for you to pay.
“Sometimes, however, we will see people who make very good incomes, yet their taxes don’t show it all, or because of loan guidelines, we can’t use them all.”
Choose a Different Type of Mortgage
There are mortgages with more understanding guidelines regarding income requirements than others.
For example, VA loans (available through the U.S. Department of Veterans Affairs) calculate income in two ways: the standard debt-to-income ratio and the more generous “residual income” method.
Here are two more types of mortgage loans worth considering:
- Freddie Mac’s Home Possible program. This program provides mortgage loans for those earning less than 80% of the Area Median Income (AMI), and they require a minimum down payment of 3%.
- A Federal Housing Administration (FHA) loan. With an FHA loan, your down payment can be as low as 3.5%. There are also no income requirements as long as you can prove that you have a verifiable stream of money that’s expected to continue.
The idea is to shop around until you find a type of mortgage that makes sense based on your current income and the type of home that you’re searching for.
Strengthen Your Application in Other Areas
In addition to a low debt-to-income ratio, there are other non-income factors to consider when applying for a mortgage are extra savings and job security. You should take time to improve your credit score or focus on your employment history before applying for a mortgage.
Remaining patient and improving your overall financial situation will help you strengthen your application and increase your chances of getting approved for a mortgage.
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