Mortgage lenders consider a variety of factors when determining whether you qualify for a mortgage loan. Usually, lenders want borrowers to have a stable employment history. But this doesn't mean that you can't qualify for a mortgage loan even if you've never held a job. What's most important is whether you can afford a monthly loan payment and if you can produce the documents that prove it.
Lenders take a financial risk when they provide mortgage loans. To minimize the risk, they review the loan applicant's financial health to determine how likely he is to default on payments. Typically, lenders prefer borrowers who have worked at least two years for the same employer. They see such a work history as evidence of job stability. Employment history, however, is only one factor that they consider. Two of the other most important factors are your history of paying your bills and your gross monthly income. If you've paid your bills on time and your monthly income is high enough, you'll have a greater chance of qualifying for a mortgage loan even if you haven't worked.
Lenders take a long look at your three-digit credit score when determining whether you are a high risk to default on your loan payments. This score tells lenders how well you've managed your credit and paid your bills in the past. Your score will be high if you have a history of paying your bills on time and if you haven't run up an exorbitant amount of credit card debt. If your credit score is high enough, your lender will be more willing to overlook some potential negatives on your application, such as your lack of a job. As of the date of publication, a score of 740 is considered good.
Even if you don't work, you can improve your odds of qualifying for a mortgage loan by proving to your lender that you have high enough gross monthly income -- your income before taxes are removed -- to afford mortgage payments. Lenders consider any payment that occurs month after month to be part of your gross monthly income. For most borrowers, a regular salary makes up a majority of that gross monthly income. If you don't have a job, though, your gross monthly income could come from disability payments, rent checks from tenants, alimony payments, a trust fund or legal settlement. When applying for a loan, you'll have to provide your lender with copies of the checks that verify your income.
If your gross monthly income is high enough, even in the absence of a job, a lender is more likely to approve your application for a mortgage loan. It will look at your front-end and back-end debt-to-income ratios to determine this. The front-end ratio looks at the relationship between your gross monthly income and your total housing payment. Lenders want your total mortgage payment -- principal, interest, taxes and insurance -- to equal no more than 28 percent of your gross monthly income. Your back-end ratio reflects your total monthly debts -- including minimum credit card payments, auto loan payment and the anticipated mortgage payment -- and your gross monthly income. Lenders want your total monthly debts to total no more than 36 percent of your gross monthly income.