A mortgage loan, which is often referred to simply as a mortgage, empowers millions of people to be first-time homeowners every year. Mortgages are available to help you purchase a home or raise funds for any purpose if you are already a homeowner. The property secures the loan, so individuals who might qualify for other types of loans may be able to get a mortgage, as well. Mortgage lenders often place a heavy emphasis on employment history, but it’s still possible to qualify for a mortgage even if you haven't worked.
Lenders Will Consider Your Income
A mortgage lender considers your income, credit score, the amount of your down payment and a variety of other factors when evaluating a loan application. The lender is taking a big chance with the borrower and they need to minimize their risks. The mortgage company will assess your financial situation carefully to determine how likely you are to meet your monthly commitments or, on the other hand, default on your mortgage payments. Therefore, in some cases, getting a mortgage loan is possible even if you are not employed and haven’t been working for a while. There are not any one-size-fits-all answers to who will qualify for a mortgage. But you should be prepared to tackle many hurdles before you are approved if you don’t have a strong work history.
Ultimately, the lender wants to know that you will have a steady income to repay the mortgage loan. Consequently, if you have a steady, established income from sources other than a job, the lack of work history may not be a problem. Consider all the income streams you have before applying for a mortgage. If you have income from disability payments, parental support, alimony, a trust fund, a legal settlement, rental income or other, it will be considered by a lender. You will need to provide documentation to back up all your current sources of income and your income history.
A lender will also consider your credit history. For example, if you have paid a car loan in full with no late payments, it shows the mortgage company that you can meet your financial obligations.
Use a Mortgage Estimator
When you’re trying to decide if you qualify for a mortgage, a mortgage estimator can be your best friend. The mortgage estimator, which is often referred to as a mortgage approval calculator, can help you evaluate your financial situation to see whether you could or should go forward with getting a mortgage. The first thing you enter in the mortgage calculator is the price of the house you're interested in buying. That’s the estimated price you will pay for the home. Next, enter the amount of your down payment, which is how much you can put down on the house up front.
Enter the terms of the loan and the anticipated interest rate in the mortgage calculator. If you are looking this over for the first time, you could input a variety of values, such as house prices and terms, just to see what are the possibilities. For example, if you don’t think you will qualify for the best loan program because of your lack of recent employment, enter a lower house price on a 30-year term with an adjustable interest rate to see how much the monthly payment would be in that scenario. From these calculations, you'll get a good idea of what you can afford.
Some mortgage estimators also allow you to include taxes, insurance and private mortgage insurance. Nevertheless, the mortgage estimator doesn’t take into account the special circumstances of your life. Therefore, it’s not going to offer the final word on whether you can get a mortgage, but it can help you take a look at the big picture.
Build Your Credit History
Buying a house with no credit is possible, but it’s not realistic to think you could get a mortgage when you lack both employment and credit history. Building an extensive work history will, of course, take years. However, you can build an excellent credit record in a much shorter period. So if you are looking for your first job, consider that one of the key factors under your control in getting a mortgage in the future will be establishing your credit history now.
If you have a hard time getting a credit card due to your lack of work history, apply for a secured credit card. It's a simple procedure: You just deposit a designated amount of money into a bank account to secure the credit card, then the bank issues a credit card that functions like a non-secured credit card as far as your credit history is concerned. It’s best to charge monthly necessities to the card and be sure to pay it off in full every month so you don’t carry a balance.
You will also build your credit history by paying all your bills on time. If you have non-secured credit cards, keep your balances below 25 percent of your available credit. And check to ensure that your lenders are reporting your positive payment history. You can check your credit score regularly with the major credit bureaus, such as Experian, Equifax and TransUnion online or have a credit report mailed out to you.
Protect Yourself From Unscrupulous Lenders
Non-bank lenders are growing in popularity. These lenders provide mortgages to people who are considered high risk, including those who don’t have recent work history or established credit. Non-bank lenders aren’t held to the same oversight that’s imposed on traditional banks. Being a non-bank lender isn’t necessarily a bad thing, though. More than 50 percent of mortgages issued in 2017 were from non-bank lenders, and more than half of the largest mortgage lenders in the United States aren’t banks. Often, due in part to more rigorous standards, it is increasingly difficult for people to get a mortgage with traditional banks who are looking to minimize their risks.
Whether you’ve worked or not, it’s important to do your research on the lenders you’re considering. You should check to see whether a mortgage company has any complaints with the Better Business Bureau or even online reviews. Also, look up the company online using keywords such as “scam” and “complaints” to make sure that the lender you're considering working with doesn’t engage in shady business practices.
Assess Your Qualifications
Qualifying for a mortgage may sound great, but it isn’t always a good idea. Consider whether you should get a mortgage at this point in your life. Also, think twice before you take on the risks of a high-interest mortgage or a mortgage for a property that's beyond your means. There may be a way to buy a house even if you don’t have a job, but taking on a mortgage is a major commitment that has to be carefully considered. Before the 2008 financial crisis, mortgage companies regularly provided loans to high-risk, aspiring homeowners, and these borrowers often defaulted on their mortgages.
Prepare a Home-Ownership Plan
You need to have a good overall picture of your financial situation as you prepare a home-ownership plan. After reviewing your budget, you can make a realistic assessment of what’s in your best financial interest before pursuing a mortgage. You may decide that it’s better to wait a couple of years before you buy a home. After all, down the road, when you have a steady income and good credit, you will qualify for the lowest fixed-interest rates on your mortgage, thus saving thousands of dollars over the term of the loan.
When it comes to work history, lenders prefer someone who has worked at the same job for at least two years. If you have applied but can’t get a mortgage without a work history, try again once you've been steadily employed with the same employer for two years.
Robin Raven is an experienced journalist and author. She has a BFA in writing from the School of Visual Arts and loves to write about personal finance. She has contributed to USAToday.com, The Huffington Post, The Nest, Grok Nation, and many other publications.