The loan is finally set to fund, but the processor calls out the Verbal VOE and discovers the borrower has changed jobs. Stop the press! Hit the brakes!
Best case scenario, this change could be as simple as obtaining a VOE for the borrower’s new/current employment. Trickier scenario, it could be a bit more complicated to verify future income if the borrower has not yet started his/her new job. In this post, we’ll explore the options and requirements to verify future income if the borrower has not yet started their new job.
Before we begin, know that both GSEs offer two options for Employment Offers and Contracts (income commencing after the note date). Let’s dig into those options and how you can verify future income for borrowers changing jobs in the middle of the mortgage process.
Fannie Mae Option 1: Produce a Paystub Pre-Close
This first option to verify future income from Fannie Mae requires a fully executed employment contract outlining position, salary, etc.
Prior to delivery of the loan, the lender must obtain a paystub from the borrower that provides sufficient information supporting the income used to qualify based on the offer or contract.
Fannie Mae Option 2: No Paystub Pre-Close
This second Fannie Mae option occurs when a paystub cannot be produced pre-close and requires a fully executed contract for future employment. The contract must clearly identify the employer/borrower and be signed by both. Further, it must clearly identify the terms of employment including position, type and rate of pay, and start date. It must also be non-contingent (if conditions of employment exist, the lender must confirm all conditions are satisfied prior to closing the loan).
This option only applies to one-unit, principal residence, purchase transactions only. Further stipulations include that the borrower may not be employed by a family member or interested party, AND the borrower is qualified using fixed base income only. Lastly, the borrower’s start date must be no earlier than 30 days prior to the note date or no later than 90 days after the note date.
In addition to the reserve amount required by Desktop Underwriter (DU), one of the following are required:
- An additional six months PITIA OR
- Enough financial resources to sufficiently cover the monthly liabilities included in the DTI (including the subject’s PITIA) for the number of months between the note date and the employment start date, plus one additional month. (More info)
Union members who work in an occupation that results in a series of short-term job assignments in the union may provide an executed offer or contract for future employment.
NOTE: DU will issue a verification message related to employment offers and contracts if the borrower’s current employment start date is BLANK or after the date the casefile was created.
Freddie Mac Option 1: Income Commences After Note Date
To validate employment when income commences after the Note Date for Freddie Mac loans, there are several boxes to check.
First, the lender must verify that the income from the new primary employment (or future salary increase with current primary employer) be non-fluctuating/salaried, and the employment may not be from a family member or interested party.
Second, the borrower’s start date must be no later than 90 days after the Note Date and may be before or after the delivery date.
Third, the borrower must produce a fully executed non-contingent employment offer letter/contract which includes the start date, annual non-fluctuating base income, and terms of employment. A 10-day pre-closing verification is required to verify that the terms of the employment offer/contract or that future salary increase have not changed.
In addition to funds to close and borrower reserves, the lender must verify additional PITIA funds plus liabilities multiplied by the number of months between the Note Date and the start date of the new employment/future salary increase, PLUS one additional month.
This option applies only to one-unit, principal residence, purchase or no cash-out refinance transactions.
Freddie Mac’s Option 2: Employment Start Date After Note Date Before Delivery Date
To verify future income using this option, the start date of the new employment has no limit on the number of days after the Note Date but must be prior to delivery date.
To verify the start date, the borrower must produce a fully executed employment offer letter/contract which includes the start date, annual non-fluctuating base income, and terms of employment. In addition, the borrower must also produce a paystub, written VOE, or a third-party employment verification supporting the income used for qualifying the borrower.
There are other requirements for this option, including that the income from the new primary employment must be non-fluctuating and salaried. Also, the employer must not be a family member or interested party.
This option can apply to 1-4 unit primary residences/second homes and investment properties, as well as purchase, cash-out refinances, and no cash-out refinances.
Do note if there are more than fifteen calendar days between the Note Date and start date of the new employment, in addition to the funds to close and borrower reserves, the lender must verify additional PITIA funds plus liabilities multiplied by the number of months between the Note Date and the start date of the new employment/future salary increase, PLUS one additional month. (More info)
Requirements for MI Loans
For loans requiring MI, Enact requires you follow standard GSE guidelines for borrowers employed less than two years and who were previously attending school or a training program. This applies to loans involving new employment income, compensation increases, and employment contracts.
The underwriter should relate the education/training to future employment opportunities and income potential and stability for the borrower. In lieu of a first paystub, new employment can be documented with a fully executed employment contract/offer outlining the start date and salary which commences within 90 days of closing.
Fully documented compensation increases may be utilized to qualify if the date of increase is within 90 days of closing.
Lastly, you will need to follow GSE standard guidelines to calculate the amount of reserves and any additional requirements pertaining to future employment or employment starting after the note date.
We know figuring all this out can be a challenge at times. As a reminder, the Enact Regional Underwriting Team is available to answer questions and assist you with navigating the requirements. We are available from 8-8pm ET Monday through Friday.
Donna Muratalla is Enact’s Pacific Northwest Regional Underwriting Manager. She is a Certified Residential Underwriter with 27 years in the MI industry. She specializes in HFA and Risk review.