A home loan with no job seems impossible. After all, the first question lenders usually ask is “how much do you make per month?” If you tell lenders you don’t have a job, you fear they will laugh in your face. The good news is there are ways to get a mortgage even without a job. They do require a little more creativity and legwork, but in the end, you get the loan you need.
Create a Positive History
A big part of the loan approval process involves looking at your history. Lenders like to see patterns. They look at your payment patterns, job patterns, and income patterns. If one of these patterns seems a little “off,” they may consider you high risk. However, if one out of three is risky and the other two overcompensate for the third, you may be in luck. Here’s an example:
John works freelance. He does not have an employer and he does not work consistently. He may go three months with no work. However, John regularly receives disability income. He also pays all of his bills on time, including his $1,350 per month rent. He does not rely on his income on a month-to-month basis. John has large sums of money in the bank. He has never had one late payment report on his credit report. He also has never had any negative economic events, such as a collection or bankruptcy. John’s credit score is over 700.
At first glance, you would think no lender would give John a mortgage. He doesn’t have a job. However, there are some strong compensating factors at play here. First, is John’s credit. The score is excellent and his history is clean. This shows that John pays his bills on time. Upon closer inspection with a Verification of Rent from his landlord, you would see that John also pays his rent on time. So he has a positive housing history. This plays a huge role in the lender’s eyes. John also has money in the bank. If a lender were to qualify him for a mortgage, they would calculate the number of months of reserves he has. This way they can see that John does not need to rely on his income to qualify for the loan. Lastly, John does have disability income, so he has money coming in that the lender can easily verify.
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As you can see, the positive patterns John created helped him look favorable to a lender. Had John had late payments on his credit report, a low credit score, or little money in the bank, the answer would likely be different.
Look at Subprime Loans
If you need a home loan with no job, don’t bother with conventional loans or even government-backed loans. They abide by the Dodd-Frank Rules, which means you need a job, steady income, good credit, and a decent debt ratio. Subprime loans, on the other hand, do not follow these rules. Each bank makes up their own rules. This means there may be several banks that offer John the opportunity to take out a home loan despite the fact that he does not have a steady job.
Subprime loans, otherwise known as alternative documentation loans, offer different ways to qualify for a mortgage. They often use bank statements rather than paystubs or tax returns to verify income. This way, for people like John or those who work on assignment, the lender can see income coming in without worrying about a steady paycheck or consistent W-2s.
Find a Co-Signor
If you cannot qualify for a subprime loan, or you just don’t want to, there is always the option of using a co-signor. You should pick someone with great credit and a steady job. The lender will use their qualifications to help you secure the loan. This means the co-borrower’s income and credit. If your co-signor has steady income, it can help you qualify for the loan even without a job. Keep in mind, the co-signor becomes responsible for the loan if you stop paying it. Make sure you think long and hard before you take out the loan to make sure you can afford it or you risk ruining your relationship with the co-signor.
The bottom line is do not give up if you need a home loan with no job. There are options out there. It is up to you to make your case look as favorable as possible, though. This means working on your credit, making sure you have assets, and paying your bills on time. The more compensating factors you have to show a lender, the easier it will be to secure financing. Your best bet is to shop around with different lenders. Each lender has different programs and different thresholds for risk. What one lender turns down another may welcome. Keep trying until you find a lender willing to lend you the money you need to purchase a home.